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Jazz Pharma's buyout backers to cash out as shares rise

by David Holley | Published March 13, 2012 at 9:24 AM

The largest private equity and venture capital investors in Jazz Pharmaceuticals plc are poised to make back their original investments through a $400 million follow-on public offering announced last week. For some of these investors, the offering could provide quite good returns.

Shareholders of Jazz want to sell 7.9 million shares of stock, and joint bookrunners Barclays Capital and Citigroup Global Markets Inc. have agreed to underwrite the transaction, each buying half of the total at $49.56 a share. The banks will then sell the shares on the Nasdaq Global Select Market, where Jazz is traded, over the counter or in other negotiated transactions, according to a filing with the Securities and Exchange Commission.

New York-based Kohlberg Kravis Roberts & Co. LP, which has invested $132 million in Jazz since 2004, should take home $148.7 million by selling 3 million shares in the offering, giving it a 12.6% return over its original investment.

While Longitude Capital Partners is selling only 1.1 million shares in the offering, the $54.5 million it is gaining provides a substantially higher return: 261% over the $15.1 million it has invested since 2009. Menlo Park, Calif.-based Longitude bought into Jazz when its stock was near historic lows.

Thoma Cressey Bravo of Chicago is set to land a respectable 54% return on the $30.6 million it has invested since 2004, selling just under 1 million shares for $47.1 million. Thoma Cressey split into Thoma Bravo LLC and Cressey & Co. in 2007, and Bryan Cressey maintained a board seat at Jazz, which he still holds.

Beecken Petty O'Keefe & Co., another Chicago investor that joined in 2004, is earning a 41% return over the $21.1 million it has invested by selling 600,000 shares for $29.7 million.

KKR will still hold the largest stake of the group, at 13.2%, after the offering. Longitude will have a 4.7% share, while Thoma Cressey will hold 2.5% and Beecken will have 1.6%.

KKR, Thoma Cressey and Beecken, among others, all invested in the same $250 million Series B round in 2004, and each has since bought additional shares. Versant Ventures and Prospect Venture Partners, which also participated in the Series B, provided a $15 million Series A round in 2003, shortly after the company was incorporated.

The stockholders are selling as Jazz has been trading at its highest levels since going public in 2007 and raising $108 million. The private equity and venture backers did not sell stock in the IPO. Jazz's stock has been skyrocketing since it announced in September it would move to Ireland in search of cheaper taxes and add-on revenue through an all-stock merger with Dublin-based Azur Pharma Ltd.

The move not only adds $100 million to Jazz's revenue stream, but it also gives the company the 15% Irish corporate tax rate. Investors and analysts have also been looking at Jazz positively in recent months as its sales of orphan drug Xyrem, a prescription drug for narcolepsy and cataplexy, continued to outpace expectations. In 2011, Xyrem sales were up 64%, causing analysts to raise expectations.

"Our guess is that there's more of the same to come in 2012 as Xyrem fires on all cylinders on both volume and price," wrote Jefferies & Co. analyst Corey Davis in a late February note to investors. Davis kicked up the company's target price to $64 a share from $56.

KKR, Thoma Cressey, Longitude and Beecken maintained a substantial stake in the new Jazz Pharmaceuticals after the merger with Azur. Jazz shareholders were given an 80% stake of the new company, while Azur shareholders received 20%. Azur has products including Prialt, a pain medication, and FazaClo, a tablet for schizophrenia.

Bruce Cozadd, chairman and chief executive of Jazz before the merger, maintained the roles afterward. Cozadd is looking to sell 50,000 shares, worth $2.5 million.

Seamus Mulligan, who was CEO of Azur but is now the chief business officer for international business development for the combined entity, is looking for a big cashout in the offering. He wants to sell 2 million shares, which would be the second-largest amount in the offering and almost half of his total ownership, for $99.1 million.

KKR, Longitude, Beecken and Jazz did not return requests for comment. A representative for Thoma Cressey declined to comment.

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