Pharma giant Pfizer announced today that it is selling its Capsugel division to private equity firm Kohlberg, Kravis and Roberts (KKR) for $2.4 billion in cash. Pfizer reported last fall that it was exploring a possible sale of its capsule manufacturing business.
It’s a major deal in the dietary supplements world, but a minor one for Pfizer. Capsugel, which was acquired by Pfizer in 2000, posted about $750 million in revenue in 2010 and manufactured 180 billion hard capsules, making it the world leader in that segment. But Pfizer as a whole now projects about $67 billion in revenue for 2011, following the divestiture of Capsugel.
Pfizer had been under pressure on Wall Street because of anemic growth. Analysts quoted by Reuters news agency said more divestitures are likely as the company seeks a way to downsize and regain some agility. They also characterized the 3.2 multiple sales price for Capsugel as reasonable considering the division’s record as a stable, moderate-growth business.
In addition to hard capsules, Capsugel also manufactures liquid, softgel, non-animal and fish gelatin capsules. Its customers include Pfizer and other pharmaceutical companies and dietary supplement firms. The company offers custom formulation services as well as contract manufacturing. It has operations worldwide, and boasts employees fluent in 11 languages.
"Capsugel has an excellent portfolio and outstanding reputation for providing high-quality, innovative drug-delivery solutions," said Henry R. Kravis and George R. Roberts, co-founders, co-chairmen and co-CEOs of KKR, in a statement. "We look forward to working with Capsugel's talented employees and investing in this business. We share Capsugel's enthusiasm for its future potential to grow, develop and continue to deliver an unmatched quality of products."
Capsugel will continue to have its headquarters in New Jersey, and all Pfizer employees working on the business will remain with Capsugel, Pfizer said in a statement. Capsugel's current president and general manager, Guido Driesen, will remain in his position until the transaction is completed.
The market showed a positive view of the transaction. Shares of KKR were up 1.6% in early trading reaching $17.18 by 10 a.m. on the New York Stock Exchange. Pfizer was also up, rising almost 1% to reach $20.56.
Pfizer still strong in dietary supplements
Even without its Capsugel contract services business, Pfizer remains a leading manufacturer within the global dietary supplement market. The company owns Centrum and Caltrate, both of which are strong supplement brands within the United States and beyond. Nutrition Business Journal estimates that Pfizer's U.S. wholesale dietary supplement sales totaled approximately $470 million in 2009, making the company the No. 4 dietary supplement player in the U.S. market.
In February, Pfizer announced it was purchasing the Danish supplement maker Ferrosan, which sells Multi-tabs vitamins and minerals, Bifiform probiotics, Zinaxin JointCare and other dietary supplement products throughout Northern Europe, as well as in the Ukraine, Poland, Turkey and Russia. As NewHope360 reported at the time of the Ferrosan purchase, the deal opens up both the Russian supplement and nutricosmetics markets for Pfizer.
Capsugel could benefit from this sale
As noted, Capsugel has been under the Pfizer umbrella for more than a decade. During this time, the capsule manufacturing division was often constrained by its much larger parent company, notes Len Monheit, executive director of New Hope Natural Media's Global Supply Network. "Capsugel now may be able to be more aggressive" with product development and market expansion. "This feels like a good sale to me," Monheit added.
In a statement, Capsugel said it was eager to begin working with KKR. "The transaction is an endorsement of Capsugel's consistent success to date and its potential for future growth with KKR, a firm with deep industry expertise and a long history of partnering with market-leading businesses to take them to the next level," Driesen said.
KKR maintains a diverse global portfolio, with numerous holdings connected to the health and wellness market. Earlier this year, KKR led a $5.3 billion takeover of Del Monte Foods Co., the maker of the Meow Mix and Milk Bone brands.
The Capsugel deal represents yet another move in the "hot potato" game pharma companies and private equity groups continue play within the dietary supplement market. In what represented one of the more significant purchases by a private equity firm, The Carlyle Group bought the largest U.S. supplement player, NBTY, for $3.8 billion in July 2010.