Recipharm to Acquire Corvette Pharmaceutical Services Group for SEK 1.1 Billion

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Recipharm 840 420

August 20th, 2014

The contract development and manufacturing organisation, Recipharm AB (STO:RECI) has signed an agreement to acquire Milan based Corvette Pharmaceutical Services Group (Corvette) from Italian private equity Group LBO Italia Investimenti s.r.l.


  • Corvette had 2013 revenue and EBITDA of EUR 57.7 million (SEK 499 million) and EUR 15 million (SEK 130 million) respectively.
  • The combined entity will enhance Recipharm’s scale and profitability. Based on 2013 proforma financials, the combined entity’s revenue and EBITDA would have been SEK 2.6 billion and SEK 408 million respectively.
  • The transaction values Corvette at an enterprise value EUR 120 million (SEK 1.1 billion) with estimated net debt of EUR 20 million (SEK 183 million).
  • The estimated equity consideration of EUR 100 million will be paid for by 50% cash and 50% in the form of a convertible bond. No additional financing is required.
  • The deal provides access to highly interesting geographical areas including Italy and a number of emerging markets, many of which are new to Recipharm.
  • Recipharm will have an asset base in each of the five largest European pharmaceutical markets.
  • Corvette has a stable and reputable customer base with little overlap with Recipharm thus presenting significant cross-selling opportunities.
  • Increases manufacturing capacity and strengthened capability in the highly sought after technology of lyophilisation.
  • Corvette will contribute to Recipharm’s Intellectual Property (IP) backed manufacturing business as Corvette’s IP portfolio supports circa 40% of their sales.
  • Accretive to profitability and EPS with both set to increase already in 2014.
  • Closing expected on 1st October 2014 following Recipharm’s Extraordinary General Meeting (“EGM”) to authorise the Board of Directors to issue the convertible bond.

Thomas Eldered, CEO: “The acquisition of Corvette is very much in line with our strategic plan and we are very excited to have secured such a high quality company. We will be gaining access to a first class and largely new customer base as well as new capabilities and capacities that will add to our technology base. Italy is an extremely interesting market made up of many small and mid-size companies where Recipharm currently has little presence. This combined with the significant sales in emerging markets represents an exciting opportunity. We are therefore looking forward to combining the assets of both organisations and working together with the management of Corvette to deliver benefit to all of our stakeholders.”

About Corvette Pharmaceutical Services Group

Corvette Pharmaceutical Services Group (consisting of Corvette Group SpA and LIO Immobiliare s.r.l.) has three manufacturing facilities located in the Milan region of Northern Italy. Each facility specialises in a different technology and business area:

  • Masate – Sterile injectable manufacturing facility with capabilities for both lyophilisation and liquid filling of vials and ampoules including hormones supplied to numerous territories including Japan.
  • Paderno Dugnano – API and finished dose form development and manufacturing facility with a number of owned product rights including Erdosteine, an important mucolytic product. The facility supplies the global market including the US and Japan.
  • Lainate – Bulk lyophilisation of sterile beta lactam antibiotics supplied to numerous markets including Japan.

Around 265 people are employed across the three facilities and over 100 customers are served including big pharma, mid-size speciality pharma as well as global generic companies.

Reported net sales in 2013 amounted to EUR 57.7 million with an EBITDA of EUR 15.0 million giving an EBITDA margin of 26% and operating profit (EBIT) of EUR 11.4 million. The net asset position at 31st December 2013 was EUR 25.2 million. The first six months of trading in 2014 is performing well with an improvement in both net sales and EBITDA compared to the same period last year. All reported numbers are according to Italian GAAP.

Transaction rationale

Enhanced Reach, Scale and Profitability.

Access to new and highly interesting geographies including Italy and emerging markets.

  • 45% of Corvette’s sales are in Italy.
  • 20% of sales are to Emerging Markets.
  • Recipharm will now have manufacturing assets in the five largest European pharmaceutical markets.

Access to a new customer base presenting significant opportunities for cross selling.

  • Approximately 80% of Corvette sales are to customers new to Recipharm.

Increased lyophilisation capacity and capabilities.

  • Strengthens Recipharm’s leadership in lyophilisation.
  • Addresses current and short term capacity shortage whilst new capacity comes on stream in Recipharm’s existing facility.
  • Ability to handle hormones in both vials and ampoules.

Significant Intellectual Property.

  • Some 40% of Corvette’s sales are backed by own IP (including marketing authorisations, product rights and patents) with a promising pipeline of new products.
  • Supports Recipharm’s ambition to include more IP in its offering.
  • Future potential royalties from the possible approval of Erdosteine as an orphan drug in the US for the treatment of bronchiectasis.

Vertically integrated development.

  • Development and small scale manufacturing of niche active pharmaceutical ingredients integrated with finished dose form development
  • Provides access to new manufacturing contracts derived from development pipeline.

Attractive financial impact.

  • Corvette’s profitable business having 26% EBITDA margin will increase average combined margin.
  • Corvette has many years of strong development in both sales and EBITDA and will contribute to combined organic growth.
  • The acquisition is expected to be accretive to EPS
  • Additional, non-quantified benefits from commercial synergies, cross-selling to customers and operational optimisation.

Transaction terms

Consideration and financing.

  • The equity consideration, estimated to EUR 100 million, is to be paid 50% in cash and 50% in the form of a senior unsecured convertible bond issued to the sellers.
  • Corvette will have approximately EUR 21 million in interest bearing debt which will be repaid after closing.
  • The cash for the transaction is already available and no additional external financing is required.
  • The sellers will be entitled to 15% of any potential Erdosteine net royalties yielded from its US orphan drug indication for a period of ten years from closing.

Senior unsecured convertible bond terms.

  • Issued to seller, LBO Italia Investimenti s.r.l.
  • Issue size: Preliminary EUR 50 million.
  • Issue price: 100% of par.
  • Coupon: None.
  • Security: Unsecured.
  • Maturity date: 30th September 2015.
  • Lock-up on shares: Until 31st March 2015
  • Conversion period: From closing until 9th September 2015.
  • Conversion terms: Partial or full conversion into new Recipharm Class B shares.
  • Conversion price is SEK 91.10, calculated based on a volume weighted average of the ten trading days before Aug 19. At full conversion, with a fixed exchange rate of 9.168 SEK/EUR, this would represent approximately 5 million new shares, close to 12% of share capital and 3.2% of the voting rights.
  • Redemption price: 90% of par, equal to EUR 45 million.
  • Listing: None.
  • Other terms and conditions as customary to convertible bonds.
  • Values are preliminary and will be finally determined at closing.

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