Lonza to acquire Capsugel to create leading integrated solutions provider to the global pharma and consumer healthcare industries

Lonza Group, KKR and Capsugel have entered into a definitive agreement under which Lonza will acquire Capsugel from KKR for $5.5 billion in cash, including refinancing of existing Capsugel debt of approximately $2 billion, through a transaction that has been approved by the Boards of Directors of both Lonza and Capsugel

The transaction will be financed with a combination of debt and equity financing. The EV/adjusted EBITDA multiple for the transaction adds up to 15.1x based on the last 12 months adjusted EBITDA figures up to September 2016.

This acquisition is fully in line with Lonza’s stated strategy to accelerate growth and deliver value along the healthcare continuum by complementing its existing offerings and by opening up new market opportunities in the pharma and consumer healthcare and nutrition industries.

With the acquisition of Capsugel, Lonza will add a trusted brand with a large breadth of technologies and will expand the market reach of its contract development and manufacturing organization (CDMO) and products businesses. It will also support Lonza’s strategic ambition of getting closer to the patient and end consumer.

The acquisition is designed to create a leading integrated, value-added solutions provider in drug development, formulation, delivery technologies and manufacturing for the global pharma and consumer healthcare industries.

The combined business will be well positioned to benefit from the dynamics in these industries and to anticipate and address technology trends to support the evolving needs of its customers. It will provide additional value by offering an integrated portfolio of industry leading technologies, from active pharmaceutical ingredients (APIs) through excipients to dosage forms and delivery technologies.

With the addition of Capsugel’s world-leading advanced oral dosage delivery technologies, including its leading position in hard capsule technologies, Lonza will become the partner of choice for its pharma customers along the entire value chain. The combined technologies and offerings will provide customers innovative solutions in both large and small molecules and solidify Lonza’s position as the partner best able to support the pharma industry by bringing new, differentiated medicines to market rapidly and efficiently.

In addition, the acquisition is expected to strengthen Lonza’s position in consumer healthcare and nutrition as Lonza becomes a fully integrated and innovative service provider of active ingredients, oral dosage forms, development services and delivery technologies. As a result Lonza will be well positioned to meet the increasing need for optimized consumer health and nutrition through a wide offering of next-generation dosage forms.

The combined business will also be able to leverage its bioavailability technology to create a new dietary ingredient-ready offering, as well as capitalize on its formulation expertise to develop new ingredients and to market new combination products.

The enlarged business would have had combined 2015 revenues of approximately CHF4.8 billion and adjusted EBITDA of approximately CHF1.1 billion with an enhanced margin profile. Lonza and Capsugel’s highly synergistic customer base and complementary business models will facilitate seamless integration. The combined business will be able to leverage the strong regulatory track record and global footprint of each company.

With approximately 3600 employees and 13 facilities on three continents, Capsugel has a customer-centric, entrepreneurial and collaborative culture that closely aligns with Lonza’s corporate culture. Both companies focus on quality, operational excellence and delivering on promises.

Richard Ridinger, Chief Executive Officer of Lonza, commented: “The acquisition of Capsugel meets Lonza’s strategic and financial goals. It accelerates our healthcare continuum strategy by giving us broader exposure to the fast-growing pharma and consumer healthcare markets. We expect the transaction to be accretive to our core earnings per share in the first full year post closing.”

He explained further: “This new integrated approach will benefit our customers, who will gain from the simplicity and efficiency of working with one company that can provide world-leading support from APIs to excipients and dosage forms. The combined business will allow us to partner with our customers to help them bring highly differentiated products to market more quickly and efficiently.”

Guido Driesen, President and Chief Executive Officer of Capsugel, said: “This transaction brings together two leading companies that share a common vision – to deliver real value to customers by accelerating their ability to develop and commercialise innovative pharmaceutical and healthcare products. The combination of our complementary technology platforms will put us in a strong position to benefit from evolving trends in the pharma and consumer healthcare markets.”

He added: “Both companies enjoy a strong quality and regulatory track record, and we believe that the combination enables us to provide the most complete set of tailored and integrated solutions for our customers. We look forward to bringing together our talented teams to deliver science- and engineering-based solutions to customers for the benefit of the patients and consumers who use their products. I am personally committed to making this integration a success.”

Pete Stavros, Member of KKR and Head of the Industrials Investing Team, said: “Since acquiring Capsugel 5 years ago, we have supported Guido and his management team in repositioning the company from a global leader in hard capsules into a specialty CDMO. Capsugel has grown significantly by investing in innovation, strategic acquisitions, product development and geographic expansion. Now Capsugel is well positioned for the next phase of its growth, and we look forward to its continued success as a part of Lonza.”

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