Jubilant's $138.5 Million Investment: What Does it Mean for the Future?
Jubilant Organosys' decision to enter the contract injectables market through the acquisition of Hollister-Stier Laboratories comes at quite a price. The $138.5 million price tag represents a hefty multiple of nearly 13 times Hollister's EBITDA, a 30% premium when compared to the multiple that the Blackstone Group paid to acquire Cardinal Health's PTS unit.
Certainly, fierce competition for Hollister drove up price, but this wasn't an acquisition funded by just cash or stock; by using Hollister's debt capacity to fund a portion of the acquisition price, this deal resembles a leverage buy-out. Jubilant and Blackstone (which also used considerable debt) prove that cheap money is readily available to borrow. And when money is cheap, private equity companies are not far behind.
This leads us to ask: will the Hollister deal set a new benchmark for valuations of pharma services companies? Or is this a one time event by an Indian company eager to expand its global reach? Presumably, Jubilant can justify paying more for Hollister than a PE firm because Hollister fits into Jubilant's larger business strategy of creating a "one stop shop" for pharma and biotech companies. But, not all buyers will be so motivated and not all properties will be valued as so strategic.
When prices are high they have the effect of attracting more sellers looking to cash in while they can. High valuations can change the outlook of even the most strategic owners. For instance, will Thermo Fisher Scientific be tempted to offer up its clinical packaging unit to the highest bidder even though it claims not to be a seller?
And what effect do these high prices have on acquisition strategies like that of Aptuit? It all makes us wonder, how big of a hangover will buyers have a few years down the road when they realize they overpaid?
Certainly, fierce competition for Hollister drove up price, but this wasn't an acquisition funded by just cash or stock; by using Hollister's debt capacity to fund a portion of the acquisition price, this deal resembles a leverage buy-out. Jubilant and Blackstone (which also used considerable debt) prove that cheap money is readily available to borrow. And when money is cheap, private equity companies are not far behind.
This leads us to ask: will the Hollister deal set a new benchmark for valuations of pharma services companies? Or is this a one time event by an Indian company eager to expand its global reach? Presumably, Jubilant can justify paying more for Hollister than a PE firm because Hollister fits into Jubilant's larger business strategy of creating a "one stop shop" for pharma and biotech companies. But, not all buyers will be so motivated and not all properties will be valued as so strategic.
When prices are high they have the effect of attracting more sellers looking to cash in while they can. High valuations can change the outlook of even the most strategic owners. For instance, will Thermo Fisher Scientific be tempted to offer up its clinical packaging unit to the highest bidder even though it claims not to be a seller?
And what effect do these high prices have on acquisition strategies like that of Aptuit? It all makes us wonder, how big of a hangover will buyers have a few years down the road when they realize they overpaid?
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