Kohlberg takes victory lap for Partners’ PCI Pharma in $3bn-plus deal

Swiss PE giant Partners Group will retain a minority investment in the pharma services company.

Kohlberg & Co has come out on top in one of healthcare’s most anticipated processes this summer, striking a $3-billion-plus deal for PCI Pharma Services, PE Hub has learned. 

Swiss private equity house Partners Group, four-plus years into its investment, will roll a minority stake in the pharma services company, people with knowledge of the deal said. The deal will provide an exit for minority investors Frazier Healthcare Partners and Thomas H. Lee Partners.  

THL – whose original investment was completed in July 2016 alongside Partners – is set to make 4.2x its money, generating an approximately 50 percent IRR, according to a source with knowledge of the matter. The on-paper return for Partners equates to a similar outcome, sources said.

Kohlberg signed a deal over the weekend for PCI, preempting a sale process that formally that kicked off in early July, sources said. Mubadala Investment Co, an Abu Dhabi-based sovereign investor, will also become a significant investor in PCI, according to a news release

A competitive sale process was conducted by Jefferies, with Morgan Stanley serving as co-adviser on the sell-side.  

Headquartered in Philadelphia, PCI supports pharma and biotech companies worldwide through its contract development and manufacturing services, clinical trial services, as well as commercial and pharmaceutical packaging technology. 

The outcome, falling substantially above $3 billion, tops expectations. Sources cited a likely valuation range of $2.5 to $3 billion in July. PCI was marketing north of $170 million in EBITDA, sources said at the time. 

Partners in June 2016 agreed to acquire a majority stake in PCI Pharma from Frazier Healthcare, the latter which retained a minority equity stake. The deal valued PCI at just under $1.1 billion, the Wall Street Journal reported at the time. 

While the downturn has weighed on many healthcare services companies providing elective procedures, PCI has seen an acceleration in growth, topping its financial estimates, sources have said. 

Underscoring the value of outsourced services in the life science spaces, the pandemic has cast a light on the entire supply chain that brings a drug from manufacturing to commercialization. 

At the same time, there’s a rise in demand for pharmaceutical packaging on the commercial side, while a surge in biotech funding for new therapies is further benefiting outsourced providers.

The deal follows a separate bet by Kohlberg in the outsourced life sciences industry last summer. The firm in June 2019 prevailed in the sales process for Mason Wells’ Nelipak Healthcare Packaging, a highly sought after provider of healthcare thermoformed packaging. The deal was valued at approximately $590 million, sources said at the time. 

Partners, THL and Kohlberg declined to comment. Frazier and PCI couldn’t immediately be reached.

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Update: This report was updated with return information on PCI for THL and Partners.