Capiton's KD Pharma sale shelved on valuation challenges

The IPO track had already suffered a setback given markets remained choppy and, although the M&A process reached an advanced stage, the vendor was not able to get the valuation it sought, the first two sources said.

KD Pharma was expected to be a EUR 1bn transaction when it was first reported that Jefferies, Evercore and UBS were mandated for a dual-track process at the start of the year.

The sale was billed as a bright spot in the German M&A pipeline with the business seeing high growth under sponsor Capiton, generating EUR 52m LTM EBITDA as of 31 March 2022, already up from FY20 EBITDA of EUR 26m, as reported.

An IPO may always have been the preferred route, but that avenue was temporarily suspended due to market conditions following Russia's invasion of Ukraine, one of the sources said. The IPO track was suspended and rekindled briefly, the same source noted, adding that conditions are not likely to improve heading into the fall.

“I doubt those metrics and multiples would improve in the space of two months,” this source said.

They miscalculated and the M&A process dragged on for too long with potential bidders waiting on the bench, said a fourth source familiar. “A parallel track where private equities are side-lined is never good.”

Binding offers in the sale track were expected at the end of June, according to a fifth source familiar.

Carlyle was among the parties last seen circling the asset in the final stages of the sale process, the fifth and a sixth source familiar said. While there were some private equity funds that were lured by the company’s track record, it also offered an Omega-3 blend with cannabinoids, also known as CBD, which was out of the ESG-related policies for some potential bidders, the sixth source noted.

The company’s higher-margin pharma products were driving up leverage discussions but a EUR 160m of forward-looking capex hung over the business and some customer concentration kept leverage in check, as reported.

Sponsor Capiton originally acquired its KD Pharma majority stake in 2013 and subsequently moved it into a single-asset fund in July 2019, for more add-ons and growth initiatives, it said in a statement. Pantheon Ventures also acquired a significant stake in the vehicle that controls the company, as reported.

Having moved the asset into a separate fund, caption can afford to hold onto it longer, with no immediate pressure to sell right away, the first and second sources noted.

Based in Bexbach, Saarland, KD Pharma produces omega-3 capsules for nutrition and pharmaceutical businesses. It operates subsidiaries in Norway, the US, Switzerland and the UK.

Caption and Carlyle did not respond to requests for comment.

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