Lonza, long regarded as the bellwether of the global fine chemicals industry, has made one of its largest ever acquisitions in the form of U.S.-based Capsugel, a supplier of advanced oral dosage delivery technologies, from private equity firm Kohlberg Kravis Roberts. The company said that this would “add a trusted brand with a large breadth of technologies and will expand the market reach of its contract development and manufacturing organization and products businesses”.

The deal, which is expected to close in Q2 2017, subject to regulatory approvals, was announced on 15 December, three days after Lonza took the rather unusual step of publicly confirming its interest in Capsugel. Five days before that announcement, Lonza had sold its peptides business in Belgium to Danish-based specialist PolyPeptide Laboratories in a much smaller transaction.The deal CHF 5.5 billion all-cash deal (the Swiss franc and the US dollar are almost at parity at present), includes the refinancing of existing Capsugel debt of some CHF 2 billion. Lonza has committed debt financing for the full acquisition from two major banks and plans to raise up to CHF 3.3 billion in equity. The board will further seek approval to raise additional share capital at its AGM in April and expects to refinance its existing CHF 700 million revolving credit facility. Lonza CEO Richard Ridinger said that the deal should be accretive to core earnings per share in the first full year post closing.

Based in Morristown, New Jersey, near to many of Lonza’s existing U.S. operations, Capsugel has about 3,600 employees at 13 facilities on three continents. Combined, the two firms would have had revenues of about CHF 4.8 billion ($4.7 billion) and adjusted EBITDA of approximately CHF 1.1 billion ($1.1 billion) in 2015.

Lonza added that the deal is in line with its stated strategy “to accelerate growth and deliver value along the healthcare continuum by complementing its existing offerings and by opening up new market opportunities in the pharma and consumer healthcare and nutrition industries”. Capsugel’s strong presence in hard capsule technologies will help it to reach out to customers in both large and small molecules, it is claimed.

Ridinger also noted that Lonza’s new integrated approach from joining forces with Capsugel “will benefit our customers, who will gain from the simplicity and efficiency of working with one company that can provide world-leading support from APIs to excipients and dosage forms. The combined business will allow us to partner with our customers to help them bring highly differentiated products to market more quickly and efficiently,” he said.

According to Lonza, the combined business will be well positioned to benefit from the dynamics in the global pharma and consumer healthcare industries and to anticipate and address technology trends. “It will provide additional value by offering an integrated portfolio of industry-leading technologies, from APIs through excipients to dosage forms and delivery technologies,” the company concluded.

The major synergies are expected through innovation, cross-selling of products and service and an integrated value offering of ingredients and dosage forms. The two firms believe that this will give them top line savings of about $100 million/year in the mid- to long term, in adding to about $30 million/year in corporate, procurement, IT and efficiency gains over three years and another $15 million/year in tax savings.

The price of the sale of Lonza Braine, which is based south of Brussels was not disclosed, though Lonza will book a non-cash related write-off of CHF 44 million in its Q2 2016 figures and a non-cash currency translation impact at the closing of the transaction. This deal should close much earlier.

Acquired from UCB in 2006, Lonza Baine is Lonza’s center for peptide chemical development and manufacturing, employing about 280 people, who will transfer to PolyPeptide, which is based at Malmö in Sweden. It was a niche business for Lonza, with limited synergies to the rest of its small molecule business, according to Marc Funk, Chief Operating Officer of the Pharma & Biotech segment.

For PolyPetides, this brings in additional large-scale capacity in synthesis, purification and isolation of peptides, complementing its existing offer. It will bring the company’s total number of manufacturing sites to seven, including two in Malmö, another at Hillerød in Denmark, NéoMPS in Strasbourg, France, a long-established facility in Torrance, California, and a generic peptides facility it built in Ambernath, India, in 2009. PolyPeptide is generally agreed to be the world’s second largest commercial manufacturer of therapeutic peptides after Bachem.