U.S. Private Equity Finds Neat $8 Billion Biotech in Sweden

(Bloomberg Opinion) -- Advent International Corp. and GIC have found a target in the Swedish stock market that ticks all the boxes. But the private equity giant and Singaporean wealth fund may have to fight to keep hold of it.

Swedish Orphan Biovitrum AB, a biotech specializing in rare diseases with a focus on haematology and immunology, agreed on Thursday to be bought by the consortium for 69 billion kronor ($8 billion) in cash. Sobi’s attractions as a buyout candidate are plentiful.

For starters, the stock market’s faith in the company is weak. Some of Sobi’s existing drugs face competition and there are risks in bringing its pipeline of future medicines to market. The share price was 26% off its 2020 high before Bloomberg News revealed Advent’s takeover interest last month. The current 235-krona-a-share offer is just a whisker below that peak, containing a respectable 55% premium to the shares’ 90-day average. That makes the bid extremely tempting to recent investors who may just want to take the money and move on.

Meanwhile, some of Sobi’s longer-term shareholders are willing sellers. Investor AB, the vehicle of Sweden’s Wallenberg family, has said it will take Advent and GIC’s offer unless a rival bid worth 251 kronor or more surfaces. Fjärde AP-Fonden, a major institutional investor, has also accepted.

As things stand, Sobi’s products are generating decent revenue and cash flow that can help fund a buyout. Should much of the pipeline come through — a big if — the resulting revenue boost would help facilitate a sale, assuming Advent and GIC were minded to exit in the roughly five-year time horizon typical of buyouts. Sobi’s sales this year are expected to be 15 billion kronor. It has a target to hit 25 billion kronor in 2025, although analysts reckon it will only get just over halfway there by then.

The deal values Sobi at 80 billion kronor including estimated year-end net debt for 2021 — 15 times next year’s forecast profit on the Ebitda measure. Suppose Advent and GIC pay only half of that in equity and borrow the rest. With analysts expecting Ebitda of 8.6 billion kronor from Sobi in 2027, a sale at the same multiple could be worth 40-50 billion kronor more than the all-in price here. On those assumptions, it’s not hard to see how Advent could at the very least double its investment in five years. It would do even better if the firm could pay down debt along the way.

Of course, this rosy scenario is far from assured. Advent and GIC have their work cut out. One risk is that sales of existing products drop off worse than expected and that the pipeline disappoints, or that the costs of commercializing new medicines are onerous. Haematology giant Roche Holding AG is a fierce competitor. The other risk is that Advent and GIC are forced to pay more, either because Sobi’s minority investors demand it or because a counterbidder steps in. With the shares trading above the offer, the market sees a chance of that happening.

That’s the snag with the best buyout targets, no one is interested in them — and then everyone is.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

©2021 Bloomberg L.P.