THE MERITS OF BEING GENERIC

When Swiss drug giant Novartis approached RoundTable Healthcare Partners several months ago with an offer to buy out its stake in Canadian generic pharmaceutical manufacturer Sabex, the firm hadn't been looking to sell yet. According to Lester Knight, RoundTable's founding partner, there were still a number of operational objectives to attain.

But Novartis dangled a $565 million (€461 million) purchase price for the company, and RoundTable gladly obliged, scoring a 150 percent gross return on its overall investment in a little more than two years.

Though a windfall for the Lake Forest, Illinois-based investor, RoundTable's success should come as no surprise. The generic drug sector has been experiencing phenomenal growth in the past few years, and large pharmaceutical groups have been quick to consolidate the highly fragmented industry. In the US alone, where Sabex does about one-fifth of its business, approximately $37 billion worth of branded prescription drugs will lose patent protection between 2001 and 2006, according to a report issued by Norwalk, Connecticut-based research firm Business Communications Company (BCC). In 2000 generic drugs had about 42 percent of the prescription market, a share that is expected to increase to almost 50 percent by 2006, the BCC report finds.

Montreal-based Sabex, which manufactures injectable drugs such as morphine and markets to hospital pharmacies in both the US and Canada, will be added to Novartis' Vienna-based Sandoz unit, the world's second-largest generic drug maker. The purchase of Sabex will give Sandoz a doorway into a $7 billion market for generic injectable drugs.

RoundTable originally invested an undisclosed amount in Sabex in April 2002, a month after announcing the close of its premier $400 million fund geared toward investments exclusively in the healthcare industry. Knight says RoundTable helped Sabex double its manufacturing capacity and set up a Lake Forest, Illinois-based subsidiary to serve as a US distribution channel. The firm also installed new management when Sabex' founder decided to retire.

Knight says RoundTable had planned on holding Sabex for the three- to five-year standard timeframe, but ended up accepting the “significant premium” of Novartis' offer, which will allow RoundTable to return about 8.2 times its original investment to investors.

ONEX, OAKTREE IN BLOCKBUSTER CINEMA EXIT
A private equity consortium consisting of Bain Capital, The Carlyle Group and Spectrum Equity Investors has agreed to buy Loews Cineplex Entertainment from Canadian financial conglomerate Onex Corporation and Los ([A-z]+)-based Oaktree Capital Management for C$2billion ($1.5 billion, €1.2 billion). The consortium will acquire Loews' operations in the US, Grupo Cinemex in Mexico, and its 50 percent interests in Megabox Cineplex of Korea and Yelmo Cineplex of Spain. Onex and Oaktree acquired the movie theatre chain in March 2002 when the cinema giant emerged from bankruptcy. Onex and Oaktree will retain the Loews' theatre business in Canada. Onex's share of the cash proceeds will be approximately C$775 million.

JW CHILDS TO SELL HARTZ MOUNTAIN
The Boston-based firm has agreed to sell its interests in pet supplies maker Hartz Mountain to Japanese conglomerate Sumitomo for $365 million (€301 million). JW Childs originally purchased Hartz from the Stern family in 2000 for a reported $328 million. The transaction ended the Stern family's 76 years of ownership and management of the pet supplier. Sumitomo, the fourth-largest trading firm in the world, plans to add to the company's product line and expand into overseas markets.

HARVEST EXITS MEDICAL SUPPLIER
The New York buyout house has agreed to sell its holding in medical equipment platform company Home Care Supply (HCS) to publicly traded Praxair Healthcare Services for $245 million (€204 million). HCS provides respiratory and medical equipment across 13 states. Praxair will integrate the business into its healthcare services unit, which provides home oxygen, respiratory medications and medical equipment. Harvest formed HCS in 1998 along with Davis Tuttle Venture Partners and former executives of Taylor Medical. For the 2003 fiscal year, the company generated $169 million in revenues. In May 2001, Harvest recapitalised HCS for $145 million.

BAIN TO BUY RHODIA'S PHOSPHATES
The Boston-based private equity firm has agreed to purchase the North American unit from the French specialty chemicals group for $550 million (€458 million). The sale by Rhodia, a global specialty chemicals group based in Paris, marks its final divestiture in its restructuring program. The subsidiary, whose 2003 sales totalled €400 million, manufactures phosphoric acid and phosphates for industrial applications. Bain's proposed purchase of the Rhodia unit marks the firm's second foray into the specialty chemicals market in the past six months. In December Bain beat rivals to acquire industrial chemicals distribution business Brenntag, auctioned off by Deutsche Bahn, for €1.4 billion.

TH LEE TO RECAP FUTURES TRADER
Thomas H. Lee Partners has announced it will recapitalise retail futures brokerage firm Refco in a deal that values the company at $2.25 billion (€1.86 billion). The firm will acquire a majority stake in Refco while the broker's management team, led by chief executive officer Phillip Bennett, will retain a significant ownership interest in the company. Refco, based in New York, is one of the largest global execution and clearing firms for derivatives with about $20 billion in assets, and also provides brokerage services in the fixed income and foreign exchange markets.

CASTLE HARLAN PLOUGHS $380M INTO GARDEN COMPANY
The New York private equity firm has agreed to buy Ames True Temper, a maker of lawn and garden tools and accessories, from middle-market private equity firm Wind Point Partners for $380 million (€314 million). The company makes lawn and garden tools and accessories, such as rakes, shovels, wheelbarrows, snow tools, striking tools, pots and planters, and sells to “big box” retailers such as Home Depot, Lowe's and Wal-Mart. Ames True Temper CEO Richard Dell will continue to lead the company. Castle Harlan managing director Justin Wender led the deal.

APOLLO INKS $215M SPINOUT
The New York firm has agreed to acquire certain businesses and product lines from Eastman Chemical. The transaction includes $165 million (€137 million) in cash and a $50 million note payable to Eastman, which is selling off its coatings, adhesives, specialty polymers and inks division. Upon completion of the deal, Apollo will assume control of about 14 percent of Eastman's workforce, or about 2,100 people. Eastman, headquartered in Kingsport, Tennessee, manufactures and markets chemicals, fibers and plastics, and is the largest maker of plastic for beverage bottles. The company reported 2003 global sales of $5.8 billion.

PLATINUM STRIKES DEALS IN GERMANY, US
The Los Angeles firm has agreed to purchase Texas-based CompuCom Systems from Safeguard Scientifics for $254 million (€207 million) and Frankfurt-based Dystar for an undisclosed amount. CompuCom provides software and services for companies to “plan, implement and manage multi-vendor computing environments.” Dystar is a German manufacturer of textile dyes. Platinum will acquire 100 percent of the company's shares, which are currently held by BASF, Bayer and Hoeschst, a subsidiary of Aventis. In 2003, Dystar posted global sales of approximately €800 million. The two announcements come as Platinum prepares to close its inaugural fund, estimated to be in the region of $700 million.

KKR TO EXIT CANADA'S YELLOW PAGES
The New York buyout firm has agreed to sell its remaining 19.4 percent share in Montreal-based Yellow Pages Group, the country's largest telephone directories company for C$743.3 million ($546 million, €447 million), netting a 3x return on investment. Factoring in KKR's C$804.4 million sale last December of the majority of its initial shareholding in the company, the firm will collect about C$1.6 billion total, tripling its C$545 million investment in 2002.

In late 2002, KKR and the private equity arm of the Ontario Teacher's Pension Plan Board acquired 90 percent of Yellow Pages Group for C$3 billion from Bell Canada. At the time, KKR put down about C$545 million in equity toward the deal, giving it a 60 percent stake in the company. Yellow Pages became an income trust, a tax-free entity that distributes most of its cash to unit holders, last August in a C$1 billion initial public offering.

FIRST RESERVE DIGS UP $1BN COAL DEAL
The energy specialist is leading The Blackstone Group and strategic partner American Metals & Coal in the acquisition of US coal assets from Germany's RAG Coal International. RAG American is the fourth largest coal producer in the US based on tonnage. James Roberts will continue in his role as chief executive officer of the newly independent company. The sale by RAG Coal follows its divestiture of assets in Australia and Colorado and the company is planning further sales of assets in Venezuela. First Reserve, based in Greenwich, Connecticut, is the largest energyfocused private equity investor in the US and the firm recently opened an office in London.

CARLYLE SETS SAIL FOR NEW HORIZON …
New York-based buyout firm Castle Harlan has agreed to buy Horizon Lines, the largest container shipping company in the US, from the Washington, DC-based private equity giant for $650 million (€541 million). Carlyle acquired Horizon, formerly known as CSX Lines, in February 2003 from rail freight company CSX Corporation in a recapitalisation transaction worth $300 million. Based in Charlotte, North Carolina, the company is the only vessel operator to serve all three of the major Jones Act trades, which are US federal regulations governing the ability to transport cargo between US ports.

… AND CLOSES $1.65BN VERIZON HAWAII DEAL
Verizon Communications, the largest US local telephone company, has sold the global private equity firm its Hawaiian local and long distance operations, as well as its Internet services and print directory. Carlyle plans to relocate all major functions of the new company to Hawaii and to staff Verizon Hawaii with local employees, including all business units currently manned by offshore Verizon staff. Verizon Hawaii controls 707,000 switched wireline access lines, and reported 2003 sales of $610 million. The company currently employs 1,700 staff. Verizon Wireless will not be included in the transaction.

WELLSPRING TO EXIT AMCI EARLY
The New York firm will sell the amusement vending machine company to Coinstar for $235 million (€196 million), netting the firm almost 6x return on its equity invested. ACMI produces and operates amusement vending machines, video games and small rides for children. The company, with operations in Mexico and Puerto Rico, distributes to outlets such as retail discount superstore Wal-Mart, restaurant chain

Denny's and Kroeger's grocery stores. Wellspring bought ACMI in February 2002; as of 2003, company sales had grown to $214.8 million, up from $141.9 million in 2001. Although Wellspring typically holds its portfolio companies for about five years, Coinstar approached the firm and offered a bid that hastened the exit.

TH LEE BUYS PET SUPPLIES CO
The Boston firm, through its portfolio company United Industries, has agreed to buy United Pet Group (UPG) from Boston-based TA Associates and Saddle Brook, New Jersey-based Friend Skoler for $360 million (€300 million). UPG, headquartered in Cincinnati, Ohio, manufactures and markets pet supplies for dogs, cats and other small animals. United Industries, which markets under Spectrum Brands and manufactures consumer lawn and garden products, expects the newly combined companies to have annual sales of approximately $1 billion and to make its product line perennial.