Target I: Bristol-Myers Squibb Medical Imaging
Price: $525 million
Sponsor: Avista Capital Partners
Seller: Bristol-Myers Squibb
Financial Advisor: Seller: J.P. Morgan Securities Inc.
Legal Advisors: Sponsor: Weil, Gotshal & Manges LLP; Seller: Cravath, Swaine & Moore LLP
Target II: Boston Scientific Fluid Management and Venous Access Businesses
Price: $425 million
Sponsor: Avista Capital Partners
Seller: Boston Scientific
Legal Advisor: Sponsor: Ropes & Gray LLP; Seller: Bingham McCutchen LLP
Few expected a flurry of year-end deal announcements given a credit crunch that has made it harder to find debt financing. Yet
With these two deals, Avista Capital’s $2 billion debut fund, closed earlier this year, will be 90 percent deployed. Expect the firm to come back to market this year, seeking between $3 billion and $4 billion for its sophomore vehicle.
The auctions for Bristol-Myers Squibb’s medical imaging product line, which went for $525 million, and Boston Scientific’s fluid management and venous access businesses, which went for $425 million, began after the credit squeeze took hold in July. It was “not an easy environment” in which to get deals done, according to Ron Sparks, Avista Capital’s choice for CEO of the Boston Scientific businesses.
Nevertheless, Avista Capital managed to raise the approximately $300 million debt packages needed for each deal, according to a source familiar with the situation. The single-tranche of debt used for the Bristol-Myers Squibb carve-out came from hedge funds that had previous relationships with Avista Capital, according to our source, who added that these kinds of alternative capital sources will continue to thrive as long as the major money-center banks are shut down. Hedge funds have capacity limitations, but the debt on the Bristol-Myers Squibb deal was not prohibitively expensive compared to typical senior loans, our source added.
The Boston Scientific deal relied on a more traditional first-lien and second-lien financing package from GE representing approximately 5.5x debt-to-cash flow, our source said. The $425 million deal represented a 10x EBITDA multiple, the source added, below the industry average of around 13x EBITDA. Products made by the Boston Scientific fluid management business are used in angiography and angioplasty procedures. The venous access business makes implantable devices that provide access to the blood stream.
According to Sparks, Bristol-Meyers Squibb and Boston Scientific are among several medical companies mulling divestitures. The entire industry has seen increased competition over the last two years, and as a result the big players are emphasizing their core businesses and spinning off the leftover pieces, Sparks said. Boston Scientific announced its plans to sell its $170 million-revenue fluid management and venous businesses in July; Bristol-Myers Squibb announced its divestiture plans in December. Each asset was considered to be neglected by its parent company, with Bristol-Myers Squibb looking to refocus on its pharmaceutical operations and Boston Scientific directing resources to its $27.2 billion acquisition of Guidant Corp.
These are not Avista Capital’s first carve-out deals. In April the firm bought pharmaceutical outsourcer Bioreliance from Invitrogen for $210 million. To prepare for the increase in medical divestitures, Avista Capital has made a big investment in health care talent and honed its approach of partnering with managers specifically designated to run the target companies, said Thompson Dean, Avista Capital’s CEO.
Sparks formerly served as CEO of Accellent, a medical device business bought by
This connections with seasoned industry executives have allowed the firm to work through health care divestitures that are often complicated, Dean said. “It’s beneficial to have deep knowledge of the markets, products, services and companies, and have the management talent to help the business going forward as independent companies,” he said. “Without that strategy, it would have been hard to do the deals.”
Neither the Bristol-Myers Squibb nor Boston Scientific assets were purchased expressly to be platform companies. But Avista Capital will be on the lookout for opportunistic add-on deals. That’s especially true for the Boston Scientific business, because bolt-on buys in related areas like cardiovascular and oncology services could make sense, Sparks said.
The Bristol-Myers Squibb division, on the other hand, may not be as likely a buyer because of the headwinds it faces when the patent on its lead product, Cardiolite, expires. The anticipated diminished cash flow prompted Avista Capital to pay a lower, though undisclosed, EBITDA multiple for the company. Still, the emergence of generic competition is not an issue for the firm, Dean insisted, citing Avista Capital’s money-making investment in Nycomed, a brand name drug company that lost its patent.
Avista Capital was founded in 2005 by professionals who spun out of DLJ Merchant Banking Partners with the backing of DLJ’s parent, Credit Suisse Group. The firm invests in energy, media and health care.—E.G.