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Fitch: Stada LBO Approach Signals Risk-on for Private Equity
2017年2月17日 / 上午10点39分 / 9 个月前

Fitch: Stada LBO Approach Signals Risk-on for Private Equity

(The following statement was released by the rating agency) LONDON, February 17 (Fitch) Cinven and Advent International's reported offers for Stada Arzneimittel may signal new risk appetite among deal-starved European LBO funds, Fitch Ratings says. The private equity financial sponsors are among other LBO buyers that are also reported to be contemplating competing bids for Stada less than a year after CVC Capital Partners failed in its approach to the German generic pharmaceuticals manufacturer. We believe the outcome this time may be different. A change in Stada's senior management late in 2016, which may have been driven by activist shareholder pressure, removed a key obstacle to a takeover. Moreover, the Cinven bid, which indicates an enterprise value of 11x EBITDA, represents a premium to the previous CVC bid of about 10x and to the current sector average of around 10x. As we noted at the time, the logic of CVC's initial approach to Stada centred on the improving appetite of leveraged credit bond and loan markets for steady cash-flow businesses with growth prospects, and the potential for cost savings and operational benefits from scale. CVC would have attempted to combine Stada with its complementary portfolio of generic pharmaceutical investments including Italian group DOC Generici and US-based Alvogen. Leveraged credit market risk appetite has accelerated since the summer of 2016, so leverage is unlikely to be a constraint to a successful LBO. However, while Cinven and many other sponsors reportedly considering a bid have experience in acquiring and consolidating in niche pharma sectors, the portfolio combinations or consolidation tactics available for Stada are less clear. Instead, Cinven, Advent and other financial sponsors may see Stada as a standalone platform from which to buy and build. The new CEO appears committed to a more focussed strategy of concentrating the product portfolio on performing branded and generic drugs with clear growth potential. The new management also has a greater focus on cost, particularly the cost of goods sold, as well as simplifying group and operating structures. This should offer cost-cutting potential, which could be accelerated under private equity ownership. We view the potential strategy as in line with general industry trends in generics, where mid-sized companies such as Stada focus on niche positions offering growth and consolidation opportunities. Stada's revenue should be supported by the general trend of increasing volumes, as generic penetration in Europe is expected to catch up with that of the US market, counterbalanced by price pressures. Ultimately, if the business model works, volume growth should counter a deflationary price environment with profitability benefitting from economies of scale. Since 2013, financial sponsors in Europe have found public market enterprise valuations too high as a multiple of EBITDA to engage in large scale public-to-private buyouts. Trade buyers have consistently out-bid financial sponsors in public auctions as they have greater scope for cost and operational synergies, lower cost of financing and less ambitious return and exit requirements. Trade buyers may still join the bidding for Stada, but global generic pharmaceutical players such Teva or Mylan may be focused on integrating more recent acquisitions and deleveraging rather than pursuing another premium bid. Contact: Edward Eyerman Managing Director Leveraged Finance +44 20 3530 1359 Fitch Ratings Limited 30 North Colonnade London E14 5GN Frank Orthbandt Director Corporates +44 20 3530 1037 Simon Kennedy Senior Analyst Fitch Wire +44 20 3530 1387 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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