Is the swap destined to be pharma's next M&A trend? When dealmakers tot up the advantages of Sanofi ($SNY) and Boehringer Ingelheim's asset-trade talks--and add them to the big GlaxoSmithKline-Novartis ($NVS) swap-out earlier this year--they might follow up with barter arrangements of their own, M&A experts say.
Though asset swaps are more complicated than your typical cash buyout, they can also help drugmakers hit more than one goal at once. By trading its animal health venture, Merial, for Boehringer's consumer health unit, Sanofi not only says goodbye to a unit it had marked for disposal, but also gains a leading spot in the consumer business.
Other major drugmakers have the same goal: Build up in areas where they can dominate, bail out of those where the payoffs are smaller or less certain. Merck & Co. ($MRK), Pfizer ($PFE), GSK ($GSK), Bayer, Merck KGaA, AstraZeneca ($AZN)--the list goes on--have done deals in that vein and want to do more.
|GHO executive partner Andrea Ponti|
Andrea Ponti, an executive partner at GHO Capital, tells the Financial Times that this sort of focused dealmaking reflects pressure on pharma to boost shareholder returns while keeping a lid on prices. One way to do that is to build up "businesses where you are well positioned but need more pipeline or more distribution," Ponti said.
He adds: "Scale for scale's sake is not something that anyone is pursuing but there are subsegments where scale still needs to be accumulated."
Those are Boehringer's thoughts exactly, one source close to those deal talks tells the FT. "Boehringer was not desperate to get out of OTC because it is a great business," says one person close to the situation. "But this was a chance to become a global leader in animal health."
Swaps are also a way of moving beyond the megamerger, Bloomberg Gadfly says, and can create win-win deals with better terms than standalone buyouts. Though Sanofi might not be getting maximum payoff from disposing of Merial via its proposed swap, it is getting a bargain on Boehringer's consumer unit at 4.2 times sales (compared with Bayer's 7.5 multiple in buying Merck's consumer arm). Boehringer gets Merial at 4.6 times sales, compared with Zoetis' ($ZTS) current trade at a 5.5 multiple, Gadfly points out.
With 2016 pegged as another active year for biopharma M&A, deals of all types will be popping up. PwC recently said 2016 would be the "year of merger mania," and swap-happy companies could be part of that.
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