JLL Partners Inc., a New York-based private-equity firm, agreed to buy a majority stake in vitamin-maker Royal DSM NV’s pharmaceuticals business to create a new company in a deal valued at $2.6 billion.
The unit will be rolled into Patheon Inc., a Canada-based specialty-pharmaceuticals manufacturer controlled by JLL, the companies said in a joint statement today. The new entity is projected to have sales next year of about $2 billion. DSM shares gained as much as 3.7 percent in Amsterdam trading.
DSM, based in Heerlen, Netherlands, and JLL are betting that combining assets will create an all-encompassing manufacturing and services company with the resources to tackle projects from the research stage to clinical trials and marketing of the products. The deal may create a more formidable competitor to Indian and Chinese manufacturers of active pharmaceutical ingredients.
“It’s clear we needed a partner who was strong in China,” DSM board member Stefan Doboczky said in a phone interview. “There’s nothing like this company that we’re creating here.”
For DSM, the venture ends a search for a partner for a division that it has overhauled to lower costs, yet still lacked sufficient scale. The deal values DSM’s pharmaceutical-products business at $670 million. JLL will own 51 percent of the new company and DSM will hold the rest. The name of the entity will be announced in the coming months.
“We see a good strategic rationale for the partnership, while the deal seems financially sound,” said Filip de Pauw, an analyst at ING.
DSM climbed as much as 2.13 euros to 60.10 euros and was up 3.5 percent as of 9:20 a.m. in Amsterdam, valuing the company at 10.9 billion euros. Before today, the stock had gained 27 percent this year.
The drug-ingredient market is growing at 7 percent to 10 percent depending on the subsegment, Doboczky said. Pharmaceutical companies such as GlaxoSmithKline Plc are harnessing increasing amounts of their resources on developing new drugs and innovating, rather than the more capital-intensive facilities needed to manufacture them.
Combining assets will also help the enlarged company accelerate expansion in the more profitable segments of the market, including lozenges, steriles and soft cells, Doboczky said.
DSM has no immediate plans to exit the business, and may contemplate exiting its stake five or six years down the line, should it make sense strategically, he said.
JPMorgan Chase & Co. is advising DSM while Morgan Stanley and Jefferies are advising JLL, according to the statement.
JLL has committed financing for $1.65 billion from banks including JPMorgan to fund the acquisition, according to the statement. JLL will invest $489 million in cash and DSM will contribute the health-care division as well as receive a seller note of $200 million, the statement shows.
JLL Partners, with more than $4 billion in assets under management, typically invests in the health-care, financial services and industrial sectors mostly in North America, according to its website.