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HgCapital sells Mercury Pharma

by Jonathan Braude in London | Published August 17, 2012 at 2:15 PM

London buyout shop HgCapital LLP agreed Friday to sell British pharmaceutical company Mercury Pharma Group Ltd. to crosstown private equity shop Cinven Ltd. for an enterprise value of £465 million ($731 million) -- at least 4.1 times its original investment.

In a separate announcement Friday, HgCapital Trust plc, which co-invests on HgCapital's deals, said it expected to realize cash proceeds of £35.4 million on completion later this month, and up to £1 million more over the next 30 months. The initial price would represent a multiple of more than 4.1 times the trust's original investment of £8.5 million and could increase to 4.3 times.

Cinven pre-empted an auction due to start next month, putting an attractive price on the table that HgCapital decided to accept. Cinven said it saw Croydon, England-based Mercury as a "fantastic platform for further consolidation both in the U.K. and internationally." It believes demographic trends would result in more patients requiring treatment with what it described as the "cost-effective products" in Mercury's portfolio.

The deal comes less than three years after HgCapital and the target's management took private for £178 million a company then known as Goldshield Group plc, taking on leverage of less than 50%.The exit value appears to justify the premium the original buyout team paid to outgun Israel's Fuhrer family, owners of Israeli pharmaceutical and consumer health group NeoPharm Inc., who had envisioned a strategic tie-up. The Fuhrers had started the bidding at 440 pence a share in September 2009. They walked away at the end of October, after HgCapital's Midas Bidco vehicle pushed the price up to 485 pence a share. At the time, it was announced that Midas' banks were underwriting debt facilities of £79 million.

HgCapital, which acquired the business through its 2009 fund HgCapital 6, knew it was buying a company with significant issues, both in terms of a previous price-fixing investigation and of a lack of focus on its core business. HgCapital's healthcare team, led by Philipp Schwalber, moved quickly to replace the management, bringing in pharmaceuticals veteran John Beighton as CEO, selling off noncore wellness and consumer-related businesses and improving quality and supply chain efficiency. It also rebranded the company as Mercury Pharma.

The amount of debt left in Mercury Pharma was not disclosed, but one financial source pointed out that the company's Ebitda has nearly doubled under HgCapital's ownership, and that some of that strong cash flow had been used to pay down debt.

Today, the company is focused on a portfolio of established products for anaesthesia and in the anti-psychotic, arthritis and anti-inflammatory, cardiovascular critical and emergency care, joint and musculoskeletal, pain and pulmonary arterial hypertension segments. It generates annual sales in excess of £100 million.

Cinven did not disclose its financing structure or name its lenders, although a source said the firm did have committed financing in place.

Cinven's team, led by partner Supraj Rajagopalan, was advised by Deloitte LLP and by Jonny Myers and Brendan Moylan of law firm Clifford Chance LLP. Roderick McGillivray of Clifford Chance provided legal advice on the debt. Tommy Erdei of Jefferies International Ltd. advised HgCapital.Richard Youle and Alex Woodward of Linklaters LLP advised the sellers.

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