Pharma has caught the eyes of private-equity investors. Drugmakers' stocks are down compared with earnings, and the industry could get a shot in the arm from healthcare reform. But not just any drugmaker will do. Bloomberg takes a look at private equity's ideal mate, as well as the pharma firms that could fit that description.
One nominee is King Pharmaceuticals, the Tennessee-based maker of generics and a few branded meds. It threw off $433.9 million in cash flow in 2008, Bloomberg notes, and cash is one thing private equity types want. Other wish-list items: low debt (King has just $400 million); market cap of $1 billion to $3 billion (King's is $2.93 billion); and low share prices compared with "earnings potential."
Then there's Endo Pharmaceuticals, tagged by Credit Suisse as a potential buyout target for private equity firms. Free cash flow: $339.2 million. Market cap: $2.6 billion. Debt: $371.36 million. And its shares are trading at a discount of about one-third off drugmakers with similar earnings, Bloomberg notes.
The Wall Street Journal Health Blog adds Ratiopharm to the list. The generic drugmaker is in the middle of a bidding process right now--and private equity funds are said to be among those making offers. Goldman Sachs' private equity unit, Permira and KKR have been named, along with TPG, which recently scooped up IMS Health.