Cinven sale shows bubble deals can turn a profit

Cinven's 3.5x exit on diagnostics group Phadia, purchased at the peak of the market in a secondary buyout, represents its second €1bn-plus gain this year.

Cinven has booked a 3.5x return on the €2.47 billion sale of Sweden-based Phadia Group to corporate buyer Thermo Fisher Scientific. It had acquired the company in early 2007 in a €1.29 billion buyout from PPM Capital, the mid-market private equity arm of Prudential, and Germany-based Triton. That pair had earlier acquired the company from pharmaceutical giant Pfizer in a $575 million buyout in 2004.

Cinven's Phadia investment generated an internal rate of return of more than 30 percent, according to Supraj Rajagopalan, a principal on Cinven’s healthcare team.

 Supraj Rajagopalan

Rajagopalan conceded Cinven acquired Phadia at the top of the market. But he added it had proven so robust, and performed so well, that the sale price represented a higher multiple to earnings before interest, tax, depreciation and amortisation (EBIDTA) – 16x – than the 13x multiple at which Cinven purchased it. The strong performance of Phadia will come as a boost to other buyout firms which invested at the top of the market before the economic crisis, demonstrating that such investments can still deliver good returns. 

Goldman Sachs managed the sale process, with Freshfields and Deloitte providing legal and accounting advice to Cinven respectively. Rajagopalan said Cinven had received several unsolicited approaches for the company over the last three years from both corporate and private equity suitors. The firm appointed Goldman once Thermo Fisher showed interest to run what he called a “rapid and discreet process”.

“Phadia was a very IPO-able asset, a real Swedish gem in a sector which has traditionally been very well regarded in Sweden. We found a lot of strategic interest in the business,” Rajagopalan said.

During its period of ownership, Cinven and Phadia’s management team helped to accelerate growth by expanding the company’s marketing capability and broadening its diagnostic offering. Cinven’s Asian arm worked to develop its presence in that market, which included the acquisition of an Asian distributor and supporting a move into India.

“The key initiative was the expansion of Phadia’s offering in the US, a structurally under-penetrated market in terms of blood diagnostics. We invested more than €15 million in an in-house sales force in the US alone, which bore fruit further into the investment,” Rajagopalan said.

Cinven delevered the company by more than three turns of EBITDA, Rajagopalan said. “We tinkered with the financing structure very slightly early on, but there was no formal refinancing. We could have held a dividend recapitalisation but chose instead to re-invest cash in the business. The fact it was able to deliver double-digit top-line growth throughout a global recession is testament to just how strong a business Phadia is,” he added.

It is Cinven’s second capital gain in excess of €1 billion this year following the staggered sale of stakes in travel group Amadeus. A spokesman for the firm said the combined unrealised and realised gains from Amadeus were approximately €1.4 billion.