3i purchases pharmaceutical company for $395m

The global investment firm has bought Nordic company Active Pharmaceutical Ingredients, signalling a possible increase in buyouts in the traditionally big pharmaceutical-dominated medical device sector.

FTSE 100 investment firm 3i has bought NYSE-listed pharmaceutical company Alpharma’s Active Pharmaceutical Ingredients business for $395 million (€270.4 million), according to a statement.

The Norwegian business provides ingredients for a number of injectable antibiotic products including Vancomycin, Bacitracin and Polymyxin. It had revenues of $138.7 million in the first nine months of 2007.

Bernie Schuler, the lead partner for healthcare at 3i, said it would look to grow the company via a buy and build strategy, joint ventures and through licensing agreements.

The firm’s strategy will involve building on the company’s market dominance for specific antibiotic products by broadening the pharmaceutical ingredients it produces and repositioning the company to increase its role in the production of medical devices such as vials and intravenous bags.

He said larger scale mid-market buyouts in this sector were uncommon because it is dominated by the consolidatory large pharmaceutical companies, so private equity firms have tended to make growth capital investments in the sector instead. 

The complexity of the sector also prevents firms from investing. “Pharma and med tech have development risk and strong regulatory influence, and so forth, and you need to understand all these drivers to invest,” he said.  But he said the changing economic cycle will mean buyout firms with the necessary knowledge will become more active in the sector as they search for defensive investments with high barriers to entry.

3i’s industrialist in residence Peter Chambré will be appointed a non-executive chairman at the company upon completion. Chambré joined 3i last year having been chief executive of medical research company Cambridge Antibody Technology Group from 2002 to 2006.

3i was advised by US bank Merrill Lynch, UK law firm Linklaters, big four accountant PwC, UK insurer Marsh and environmental consultancy ERM.

Debt financing was underwritten by US conglomerate GE’s commercial finance arm as global coordinator, French bank CALYON Crédit Agricole CIB, Nordic banks Danske Bank, Nordbank and European investment firm European Capital.

3i has invested in the pharmaceutical sector for 15 years. It sold Betapharm in 2006 for €480 million ($701.7 million) having bought the pharmaceutical company in 2004 for €300 million.