European buyout firm Charterhouse [CHCAP.UL] has hired London-based L.E.K. Consulting to provide strategic advice to the Italian generic drugs company Doc Generici, which could lead to a sale next year, sources familiar with the matter said.
Charterhouse wants to take advantage of strong growth prospects for cut-price medicines in the world’s eighth biggest pharmaceuticals market, seven sources said, and could decide to cash out before a new wave of patent expirations takes place in Italy in 2017.
If it goes ahead, the London-based private equity house could net around 600 million euros ($637.50 million) from the sale, the sources said, with one adding that it may take up to 18 months to find a new owner.
Charterhouse declined to comment while Doc Generici and L.E.K. had no immediate comment. The private equity house has tested appetite from potential suitors in recent weeks and will meet with investment banks early next year to take a final decision on the sale, which could be launched after the summer, the sources said. The business has already drawn interest from buyout funds Blackstone (BX.N) and CVC [CVC.UL] among a series of investment firms that are looking to take part in any auction, three of the sources said. Blackstone and CVC declined to comment. Milan-based Doc Generici is one the leading suppliers of cheap generic drugs in Italy and competes with international players such as Teva (TEVA.TA) and Sandoz, part of Swiss drugmaker Novartis (NOVN.VX), which are also present in Italy.
Its management team led by Chief Executive Gualtiero Pasquarelli is working closely with L.E.K. Consulting to help develop a five-year business plan, two of the sources said.Prospective bidders could either wait for an auction to kick off in the second half of next year or talk directly with the seller to preempt the process, the sources said. Doc Generici, which employs roughly 70 people, has seen its core earnings grow more than 30 percent since Charterhouse took control in 2013.
It could be valued at a multiple of 10 times its expected earnings before interest, taxes, depreciation and amortization (EBITDA) of 60 million euros in 2015, the sources said. “It’s a cash machine: it makes money like a pusher,” said one of the sources. In 2013 Doc Generici started supplying the cheaper generic version of Pfizer’s Viagra in Italy pricing it at a 60 percent discount. Its portfolio also includes cardiovascular and cancer drugs as well as neurological and respiratory products among others.
SLOW OFF THE MARKS Italy has been slow to adopt generic medicines. Overall, generic drugs account for only around 20 percent of the market in Italy, well below the European average. In countries such as Britain, Germany and the Netherlands, generics account for between two-thirds and three-quarters of the market. That creates an opportunity for generic makers in the country as the government seeks to stimulate greater uptake of cheaper generics as a way to keep a lid on rising medical bills. Like other peers Doc Generici has so far benefited from generous discount rates allowed by the Italian government for generic medicines as Italy was struggling to emerge from its worst recession since World War II. But with Rome forecasting growth of 0.9 percent this year, strengthening to 1.6 percent in both 2016 and 2017, some sources argued that a clamp down on high discount rates applied by generic drug firms is likely to be expected in the coming years. The generic drugs industry has seen a wave of consolidation worldwide in recent years as leading companies have sought economies of scale in a business that is all about producing goods at the lowest possible price. Charterhouse bought Doc Generici in 2013 from its previous owners, Canada’s Apotex and Italian drugmakers Chiesi Farmaceutici and Zambon.
One of the sources said the business was then valued at slightly more than 300 million euros or 7 times its EBITDA of 45 million euros at the time.