The stakes are high for fine chemical companies

19 November 2007 00:00  [Source: ICB]

Fine chemical firms are urged to pay heed to their pharma customers

FINE CHEMICAL companies must address the concerns of its pharmaceutical and biotechnology customers before pursuing mergers and acquisitions.

"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."

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, that one fine chemical firm was recently sold to its customer, he said. The company was only marginally profitable, but it sold for about three times its sales after competitive bidding.

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

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

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

"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."

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