By Pamela Barbaglia
LONDON (Reuters) - Poland's largest drug maker Polpharma is working on a possible $4 billion takeover of Czech rival Zentiva and is looking for investors to join its bid in return for a minority stake in the Advent International company, three sources said.
Discussions between Polpharma and potential partners are at an early stage and the Polish company has yet decide how it would structure a joint bidding vehicle, the sources said on condition of anonymity, warning that no deal was certain.
Polpharma's move comes after Advent snubbed proposals from banks last year for an initial public offering (IPO) of Zentiva as stock market listings slowed down in the second half of 2021, the sources told Reuters.
Polpharma needs a deep-pocketed private equity firm to help finance the bid that could value Zentiva at 3 billion to 3.5 billion euros ($4 billion) and it has hired JPMorgan (NYSE:JPM) to select potential investors, the sources said.
A representative for Polpharma said it was "constantly looking for acquisition targets and partnership opportunities in its own and new territories", but declined to comment on any specific deal.
JPMorgan declined to comment while Advent was not immediately available.
Private equity firms have paid high prices to hoover up large generic drug portfolios from major pharmaceutical firms in recent years, playing a key role in the creation of big industry players, but some are now looking to realise their investments.
'PRICE IS KEY'
The market for generic drugs is expected to grow from $411.6 billion in 2020 to $650.3 billion by 2025 at a compound annual growth rate of 9.6%, according to a study by BCC Research.
Boston-based private equity firm Advent bought Zentiva, which makes a wide range of generic and over-the-counter drugs, from French pharmaceutical giant Sanofi (NASDAQ:SNY) for 1.9 billion euros in 2018.
Zentiva's medicines are sold in more than 40 countries and the Prague-based company has manufacturing sites in the Czech Republic, Romania and India, according to its website.
Under Advent's ownership, Zentiva's core earnings have risen to about 200 million euros through a series of acquisitions including the takeover of British firm Creo Pharmaceuticals in 2019 and the purchase of the Central and Eastern European business of rival Alvogen in 2020, one of the sources said.
Zentiva, led by Chief Executive Nick Haggar, could be valued at a multiple of more than 15 times its core earnings, the source said, adding that its valuation surged after the full integration of the Alvogen business.
Advent, however, is in no rush to part ways with its portfolio company and could back the business for another year before exploring strategic options, two of the sources said.
"The bid price is key to luring Advent to the negotiating table," one of them said. "Advent is not running any auction process. It is up to interested parties to force their hand."
On Nov. 15, Zentiva denied a Czech press report that Advent was looking to sell the company in a transaction worth between 2.4 and 3 billion euros.
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