Deal Mechanic: CBPE & Rosemont Pharmaceuticals

In its six years as owner of Rosemont Pharmaceuticals, CBPE helped the business to overhaul its manufacturing process, expand its product line and bolster its management team – more than doubling EBITDA in the process.

Rosemont Pharmaceuticals occupies an unusual niche: founded in 1967, it makes oral medicines for patients – mostly old people – who have trouble swallowing standard pills and capsules. In 2006, UK-based lower mid-market group CBPE Capital paid £93 million to buy the business from former owner Savient Pharmaceuticals.

CBPE’s previous pharma experience was key to winning the deal, according to partner Sean Dinnen. “When we met the management team, they could tell quickly that we had a good grasp of the pharma sector – which is relatively rare in the lower mid-market, because it’s a specialised area.”

Dinnen and his team felt the business would benefit from more active ownership. “Savient had bought the business opportunistically, and hadn’t really done anything with it. We could see that if certain things were done, it had significant growth potential.”

So it proved. During its six years of ownership, CBPE helped the company more than double EBITDA, from around £8.7 million to £19.2 million, while expanding staff numbers from 156 to 209. This year, it was able to sell the business for £183 million, banking a 3.25x return on its original £53 million equity cheque. Here’s how.

1. Sticking to the knitting

The first key decision, according to Dinnen, was to remain focused on liquids, rather than branching out into other related areas (like creams, ointments and so on). “Our fundamental strategy was to develop a business that had a reputation for being best-in-class globally in oral liquid formulations. Another owner could have gone down a different route, but we wanted to remain pure-play liquids.”

As part of this drive to become best in class, it stopped doing contract manufacturing for other pharmaceutical companies – a high volume but low margin business – to focus on its own products.

It didn’t shun the pharma giants altogether, however; on several occasions it worked with one of the big players to develop a liquid version of their drugs (notably with Lundbeck on its epilepsy drug clobazam, which Rosemont eventually took to FDA approval in the US). But that was a different sort of relationship – and by establishing Rosemont as a trusted expert, it helped to bolster the company’s best-in-class credentials (and thus its eventual valuation).

2. Improving the manufacturing process

As soon as it acquired Rosemount, CBPE gave the green-light to a plan – worked on but not executed under the previous ownership – to “materially upgrade” the company’s manufacturing facility in Leeds, and to expand and refurbish its warehouse.

With the help of some specialist manufacturing consultancies, this project was completed over a period of almost three years, at a cost of about £6 million.

“When we bought the business, the manufacturing facility had a totally illogical and inefficient layout,” explains Dinnen. “For instance, the half-finished product had to be transferred from the end of the production line across the site to the quality assurance and bottling area. So we totally reconfigured the site – both to make it more efficient and to increase capacity.”

By the time the company was sold, capacity had increased from 6 million bottles to 10 million (current production is about 4 million bottles, so Rosemont still has plenty of growing room).

3. Investment in new products

New product development was a major focus. The new owners brought in a new R&D director – who had previously worked at Sinofi and Merck – and during their ownership, boosted the new product team from 10 people to 24.

“What this did, over time, was to significantly enhance the product portfolio – both in terms of number and quality,” says Dinnen.

The result was that Rosemont went from having 58 molecules and 103 separate products to having 94 molecules and 160 products; by the time of sale, over a third of the company’s revenues came from products that didn’t exist when CBPE bought the business.

It also led to a more balanced product portfolio. By 2012, the proportion of revenue generated by its top five biggest sellers had fallen from 45 percent to 28 percent.

4. Unlocking the company’s international potential

Rosemont also made great strides in a related area: the licencing or regulatory side of its business, which involves taking products through an approval process (including biostudies) that ultimately gives the company the exclusive right to sell that product.

Most of Rosemont’s products start off as ‘specials’ – non-standard preparations designed to meet a particular medical need. But as the market for a particular product grows, and other suppliers get interested, the company has the option of licencing it. Under CBPE’s aegis, this bit of the business was beefed up substantially – from five to 11 people. This helped it increase the company’s roster of licenced products by a third.

Significantly though, in the latter years of its ownership it also worked hard to obtain more Europe-wide licenses. Rosemont had just one product with an EU licence in 2006; by 2012, this was up to 50, and most of those were done in the last two years. CBPE didn’t actually get to see much of the financial benefit, since it takes time for these new licences to pay off in sales. But it meant that the licences, potential distribution networks and even possible pricing structures were all in place for the next owner – making the company much more saleable.

5. Bolstering second tier of management

“The chief executive and the finance director were very good; in fact they were part of the attraction of the deal,” says Dinnen. “John [Blythe, the CEO] had worked there for 40 years and knew more about liquids than anyone else.”

However, CBPE was active in supplementing the team around these two. “We brought in a strong chairman in Kevin James, who used to run Wyeth in the UK. We also upgraded the second tier of management, bringing in people with more experience at a higher level from bigger pharma companies.” That included the aforementioned R&D director, plus a new clinical director who was ex-Merck and a head of quality who had previously been with Reckitt Benckiser.

This became particularly significant when it came to addressing one of the biggest problems CBPE faced when selling the business: the fact that the two senior people were both retiring. Because Rosemont’s second-tier of management was much stronger, it gave potential buyers a bit more comfort about how the business would cope (although Blythe is staying on for at least six months to manage the transition).

Blythe certainly has no complaints. “We got on very well with CBPE right from day one. The most important thing is that we believed they would allow us to manage the business ourselves on a day-to-day basis. PE houses always say that they’ll let management get on with it, and you’re always a bit unsure about whether that’ll be the case. But CBPE recognised that we knew what we were doing, and that we had the building blocks for a very strong business. That doesn’t mean we had carte blanche – we had to justify all our ideas. But if they were backed up by sound arguments, CBPE were always supportive and forthcoming.” n