Customer concerns key in fine-chem M&A - banker

24 October 2007 23:49  [Source: ICIS news]

NEW BRUNSWICK, New Jersey (ICIS news)--Fine chemical companies must consider the concerns of its pharmaceutical and biotech customers before pursuing an M&A deal, said one investment banker on Wednesday.

“Although cost is an important factor among customers, stability and continuity of supply is of utmost concern,” said Chris Cerimele, senior vice president at the investment bank Lincoln International at the DCAT/ISM/ICIS Strategic Sourcing Summit ’07. “Communication with key customers prior to closing can be essential to a smooth transition.”

Pharmaceutical firms outsource production to fine-chemical companies.

The main reason that new ownership is of concern to a pharma or biotech customer is because of the high cost of re-sourcing an intermediate or advanced pharmaceutical intermediate (API), he said.

“The cost can be as high as $1m (€700,000) and can take as long as 12-24 months,” Cerimele said.

The concern is so critical, one fine chemical company was recently sold to its customer, he said. Although the company was only marginally profitable, it sold for about three times its sales after a competitive bidding process.

Overall, fine chemical deals have not experienced the full effect of the global credit crisis, since such transactions are typically in the mid-market range of below $500m, said Cerimele.

“Mid-market deals are moving forward, although financing terms and pricing of debt is now more in line with historical norms, compared to an exceptionally strong first half,” he said.

There has also been a shift towards Indian fine chemical companies doing more deals in Asia rather than in the US and Europe, Cerimele noted.

 “The reasons are not yet clear, but it’s worth noting that 10 out of the top 20 Indian fine chemical firms already have manufacturing assets in the western world. The trend of Indian companies buying western fine chemical assets may have run its course.”

 The two-day DCAT/ISM/ICIS Strategic Sourcing Summit ends on Thursday.

By: Joseph Chang
+1 713 525 2653

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