JLL sees roll-up potential for pharma services after $2.6 bln DSM deal

  • JLL paying $489 million in deal to create largest pharmaceutical services company
  • Management initiated deal with DSM to build industry leader
  • JLL’s LPs commit $200 million to deal

Levy told Buyouts the transaction resulted from talks between the two companies’ management teams, with no formal auction process. The combined company will rank as the largest in the pharmaceutical services business, he said.

The combined company – which will be named after the acquisition closes as expected next year – offers opportunities for add-on acquisitions, he said. JLL will hold a 51 percent stake, with DSM retaining 49 percent.

“The pharmaceutical manufacturing industry is highly fragmented,” Levy said. “We’d like to think we’ll have some good opportunities to build the business through some modestly-sized acquisitions over the years.”

Levy said JLL Partners has no plans to take the combined company public. JLL tapped capital mostly from JLL Partners Fund VI LP, with some contribution from JLL Fund V for its $489 million contribution to the combined firm.

JLL, a mid-market buyout shop, reached beyond its average $150 million check per deal, partly out of faith in Patheon CEO Jim Mullen’s ability to run the combined company. Mullen joined Patheon, a publicly-traded company on the Toronto Exchange, in 2011 after heading up Biogen, where he oversaw the merger of Biogen and Idec that created Biogen Idec.

“Running a $2 billion revenue business for Jim Mullen is not a new challenge,” Levy said. “We’ve had a terrific working experience with Jim. He’s proven his turnaround experience and so we feel comfortable with him. And we see some significant opportunities with the new assets we’re acquiring, to improve those as well.”

JLL, which is marking its 25th anniversary this year, invested in Patheon in 2007. Since then, the firm has increased its EBITDA to a run rate of $190 million from $70 million, on a combination of organic growth and acquisitions.

Under the terms of the deal, JLL will pay $489 million in cash to the combined company, and DSM will contribute DSM Pharmaceutical Products and receive a note for $200 million. DSM Pharmaceutical Products will be valued at $670 million. The combined company, which is being called NewCo for now, will acquire Patheon for $9.32 per share in cash, resulting in a total enterprise value for Patheon of about $2 billion.

On the deal front, Stephan Doboczky, a member of the managing board at DSM, said the firm may take a small breather after nearly $3 billion in acquisitions in the last three years as it repositioned itself in the nutrition and advanced materials arena.

“We may do deals in the future, but we’re focusing on integration right now rather than a shopping spree,” he said.