Monthly Archives: November 2010

Brocair Partners Advises Public Pharmaceutical Intermediates Company on Sale to Strategic Buyer

Brocair Partners LLC, an investment bank serving the healthcare industry, advised Synthetech, Inc. (OTCBB:NZYM) in the sale to W. R. Grace & Co. (NYSE:GRA)

NEW YORK, NY – November 18, 2010 – Brocair Partners LLC, an investment banking firm serving the healthcare industry, advised Synthetech, Inc. (OTCBB:NZYM), a U.S. public company, in the sale to W.R. Grace & Co., (NYSE:GRA) based in Maryland. In addition, Brocair also issued a fairness opinion to the Special Committee of the Board of Directors of Synthetech.

Grace acquired Synthetech from shareholders for an aggregate purchase price of $19.2 million. The transaction closed November 18, 2010. Synthetech will be integrated into Grace Davison’s Specialty Technologies business and become a wholly owned subsidiary of Grace.

Rusty Ray, Partner at Brocair, explained, “This has been a transformative transaction for our client, Synthetech, and provides the company with a tremendous advantage that comes with being part of a larger entity.”

On June 28, Synthetech Inc. announced that it had engaged Brocair Partners LLC to conduct a comprehensive review of strategic alternatives aimed at enhancing shareholder value. Strategic alternatives Synthetech considered included, among others, the execution of Synthetech’s operating plan, the sale or acquisition of assets or businesses, partnering or other collaboration agreements or arrangements, a merger or sale of the company or other strategic transactions.

“We worked with the Board of Synthetech to explore options to create shareholder value,” explained Gregg Blake, Managing Partner at Brocair. “In the end the transaction with Grace delivered value for shareholders, and a significant premium over Synthetech’s recent trading range.”

The definitive merger agreement was announced on September 14.

Synthetech, Inc., a fine chemicals company, specializes in organic synthesis, biocatalysis, and chiral technologies. The company develops and manufactures proprietary custom chiral intermediates, amino acid derivatives, specialty amino acids, peptide fragments, and specialty resins primarily for the pharmaceutical industry, as well as produces pharmaceutical intermediates. Synthetech’s products are used in the development and manufacture of therapeutic peptides and peptidomimetic small molecule drugs at various stages of a customer’s clinical development pipeline, and are used as ingredients in drugs for the treatment of AIDS, cancer, cardiovascular, and other diseases. The company was founded in 1981 and is headquartered in Albany, Oregon.

Grace is a leading global supplier of catalysts and other products to petroleum refiners; catalysts for the manufacture of plastics; silica-based engineered and specialty materials for a wide range of industrial applications; sealants and coatings for food and beverage packaging, and specialty chemicals, additives and building materials for commercial and residential construction. Founded in 1854, Grace has operations in over 40 countries.

Brocair Partners Quoted in Article on Medical Device Industry

Spare Parts Inc.

The Deal
by Thomas Zadvydas
Updated 12:48 PM, Nov-12-2010 ET

Despite political uncertainty over the fate of healthcare reform, the medical device business keeps chugging along. The sector has seen almost 20 deals since President Obama signed healthcare legislation into law March 24. According to the Advanced Medical Technology Association, America’s medical device sector, or medtech, produced about $136 billion in products in 2008, the last year for which data is available, a 21% increase over 2005.

Healthcare boutique Walden Group Inc. of Tarrytown N.Y., reported 55 medtech deals over the first six months of 2010, compared with 12 in the same period in 2009.

Medtech has long been a rich vein of M&A — though not for private equity. “Traditionally, strategics have dominated M&A, and having a private equity player come in is significantly rarer than in other industries,” says Goodwin Procter LLP partner Raymond Zemlin. “Strategics tend to be willing to pay more because they see synergies. You don’t have to add a whole new sales force.”

The industry is diverse, high tech and highly regulated. Funding for startups, often based on innovations from academia or research hospitals, is relatively abundant, and capital costs are high — but not nearly as high as for, say, biotech. The big strategics then sort through emerging companies and acquire regularly.

Currently, cardiovascular and orthopedics look particularly attractive to big players — Medtronic Inc., Boston Scientific Corp., Johnson & Johnson, Abbott Laboratories , Cardinal Health Inc. and European players Covidien plc, and Roche Holding Ltd.–which have either struck deals or are on the prowl, utilizing large cash hoards amassed during the downturn and fueled by 78.2 million aging baby boomers. “People are getting older, they need new hips, new knees, new backs,” says Zemlin.

Another factor: a 2.3% excise tax taken from the sales of any instrument, apparatus, implement or machine intended to affect the structure or any function of the body or diagnose or treat disease, according to a definition from the Federal Food, Drug, and Cosmetic Act. The levy is designed to generate $20 billion over a decade to help fund healthcare reform. The tax takes effect in 2013, and companies are rethinking strategy because of it, including M&A, say observers.

Valuations remain relatively healthy, say bankers. “I think 10 times to even low teens in terms of [Ebitda] multiples are things we’ve seen,” says Rusty Ray of healthcare investment bank Brocair Partners LLC.

“For your Ebitda-based businesses that actually produce positive cash flow, I think 10 times is probably a better estimate; in the peak of the market it was more 12, 13, 14 times,” says Leerink Swann LLC healthcare banker Adam Berger. Data from HT Capital Advisors LLC reported Ebitda multiples as high as 20.9 times in early 2008. Of course, says Berger, “there are medtech companies that don’t make any money. They’re more revenue multiples. It’s highly variable, but typically those are probably 5 times revenues.”

One of the biggest medtechs is Minneapolis-based Medtronic, which on April 30 grabbed local heart valve and cardiovascular device maker ATS Medical Inc. for $370 million. It retains a sizable cash hoard: $1.3 billion as of July 30, according to a Sept. 8 10-Q. Four months later it snatched up Eatontown, N.J., bone-grafting materials manufacturer Osteotech Inc. for $123 million.

Medtronic has 20% of the world’s heart valve market and wants to expand into tissue valves, an ATS product, says analyst Ernest Andberg of Feltl and Co. Tissue valves have a global market of $800 million to $900 million. “It gives [ATS] more feet on the street and really solid financial backing to expand,” Andberg says.

ATS reported $37.6 million in net sales for the six months ended July 3, compared with $38.1 million for the prior-year period. Its $10.3 million operating loss amounts to 27.5% of sales.

Medtronic’s ATS deal builds on three prior transactions: the February 2009 acquisition of Ventor Technologies Ltd. for $325 million, the $700 million deal for CoreValve Inc. two months later and the purchase of Italy’s Invatec SpA, which develops heart disease treatments, for up to $500 million in January 2010.

Medtronic bought Osteotech to beef up its bone-healing franchise. Osteotech had tapped Deutsche Bank Securities Inc. for a strategic review after its stock hit a 52-week low. Osteotech reported a $1.4 million loss on $46.5 million in revenue for the six months ended June 30, compared with a $3 million loss on $47.4 million for the same period last year. Its $3.1 million in Ebitda for 2009 was down 63% from a year earlier. Analyst Matt Dolan of Roth Capital Partners LLC believes the target was on the block for at least a year, though the company would not confirm this. “Osteo[tech] was trying to break even for the year. With Medtronic they’ll be able to eliminate a lot of redundant costs,” he says.

These are not unusual stories in medtech. Will dealmaking continue? “I think 2011 will be a better year, there will be more M&A activity, but it’s still going to be choppy,” says Zemlin. “I know companies, some of my clients included, certainly hope that we haven’t heard the last word on the device tax.”