Was doing some light reading on the CDMO industry and ran across a paper that E&Y wrote last year and following is the summary (some numbers look familiar so would not be surprised if some other investors were reading the same analysis!).
The pharmaceutical contract development and manufacturing organization (CDMO)1 industry is extremely active. In December 2016, Switzerland’s CDMO Lonza acquired Capsugel, a development and manufacturing specialist for gelatin capsules, for US$5.5b. This was one of the largest deals in the CDMO industry, aimed at building a vertically integrated solutions provider. Only five months later, in May 2017, life science company Thermo Fisher Scientific paid an even higher price to acquire Patheon, one of the leading global CDMOs, for US$7.2b. This deal allows Thermo Fisher Scientific to broaden its range of life
science services significantly, taking the company closer to its goal of becoming a leading one-stop shop provider to the pharmaceutical industry. These two deals are remarkable in size and represent the largest premiums paid for CDMOs in more than five years: Thermo Fisher Scientific’s US$7.2b offer values Patheon at 16x to 17x its expected 2017 EBITDA, in line with Capsugel’s 16x multiple. Yet they constitute only the tip of the iceberg of the rising M&A activity in the CDMO industry. In addition to companies solely active in the CDMO industry, pharmaceutical companies have been growing their
third-party manufacturing services, e.g., Pfizer’s CentreOne and Sanofi’s CEPiA. The search for attractive assets is not limited to the CDMO industry: global non-pharmaceutical players are entering the stage to diversify their portfolio, exemplified by the Thermo Fisher Scientific-Patheon deal or the creation of biopharmaceutical CDMO Samsung BioLogics. Given the continual need for outsourced manufacturing and the still fragmented vendor landscape, the CDMO industry is expected to remain a very attractive sector for M&A activity in the future.
1.1 The CDMO industry is heating up: consolidation and diversification
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