On May 18, Endo announced it would acquire Par Pharmaceutical for $6.5 billion cash and $1.5 billion stock. The acquisition is the latest consolidation in a robust M&A market, especially in the healthcare sector. Endo has stated multiple reasons for the deal, including building its generic drug platform as well as significant operational and tax savings.
The transaction will save the company $175 million in tax and operational synergies the first 12 months. While these savings are an important part of the picture, they are not the primary driver for the deal.
Adding more products to build out Endo’s generic drug business is where real growth lies. The Wall Street Journal describes it this way: “Tax benefits are widely seen as juicing an otherwise hot deals market, particularly for health-care M&A over the past year and a half.”
Once the acquisition is completed, the expanded generic drug pipeline will be a gift that keeps on giving, unlike cost saving benefits, which can only be reaped once. New generic drugs will help Endo grow now, over the next few year, and for many years to come.
The acquisition will:
- Create a generic drug business that is one of the top five as measured by U.S. sales.
- Create one of the fastest-growing generic drug divisions in the industry
- Add 100 products to Endo’s portfolio, some of which are more expensive, injectable medicines
- Double revenue for the generic division
By acquiring Par, Endo is fulfilling one specific need – growing its generic drug business. This approach is what we call having only one reason for acquisition, which allows you to remain focused on your strategy for growth and increases your chance for success. Rather than trying to fulfill multiple needs with one acquisition, which can lead to a diluted and unfocused strategy, have only one reason for acquisition so that you have a clear path for moving forward.
If you do have multiple needs, you can always take a second bite of the apple, which is what Endo has done as a serial acquirer throughout the years. By acquiring multiple companies, Endo has grown considerably. Since 2013, the market value of the company has quadrupled.
Endo’s recent deals include:
- Auxilium Pharmaceuticals, a Pennsylvania-based biopharmaceutical company, for $2.6 billion
- Natesto (testoternoe nasal gel) for $25 million from Trimel BioPharam SRL
- Generic pharmaceuticals company DAVA Pharmaceuticals for $575 million
- Expanding in Latin America with Grupo Farmaceutico Somar, a privately owned pharmaceutical business based in Mexico City
- The rights to Sumavel DosePro, a needle-free delivery system for subcutaneous use, from Zogenix Inc. for $85 million
- Paladin Labs for $2.7 billion, which allowed the business to reincorporate in Ireland
- Specialty generics company Boca Pharmacal for $225 million
There was a different strategic reason for each deal. For example, the Auxilium Pharmaceuticals transaction specifically focused on men’s health and urology while the acquisition of Grupo Famaceutico Somar focused on growing in key emerging markets in Latin America. Often frequent, smaller, strategic deals can help a company grow more effectively than a single large, transformative deal.