Setting Expectations for Facility and Business Sales in the CDMO Sector

Transaction brokers are a critical resource in making the right choices and successfully navigating the site transaction process. They can help sellers effectively prepare and set reasonable expectations to maximize opportunities in the current sellers’ market.

Healthy Market

The robust growth in the pharmaceutical contract services market has led to significant merger and acquisition activities spanning a range of transactions. Some CDMOs are expanding by acquiring large pharma facilities and their associated operations, while others are snatching up smaller players with complementary capabilities and/or market reach. Valuations for CDMOs and their investment targets have never been higher.

Multi-Step Process

A transaction expert/broker is a critical resource that assists sellers in making the right choices and successfully navigating the selling process. The first step is to establish the appropriate level of confidentiality and a detailed strategy for maintaining that confidentiality throughout the process. Next, the prospective seller develops a profile and explicitly defines what is for sale. The broker provides an estimate of the sale value based on sales of similar assets to set expectations. All necessary information to support the sale must be compiled and deposited in a data room, usually managed by the broker. 

The broker then assesses the market and identifies targets to create a list of potential buyers that are acceptable to the seller. Together with the seller, the broker crafts an information memorandum that presents the desirable attributes of the assets and highlights the aspects that generate value. In some cases, the broker contacts potential buyers without revealing the identity of the seller or exactly what is for sale. After signing a confidentiality agreement, promising competitive bidders can usually get three to four weeks of access to the data room, where they can submit refined offers.

After reviewing the refined offers, the seller and broker provide a limited number of potential buyers with a draft legal purchase and sale agreement for consideration. Finalizing a deal often takes at least 10 “legal touches” or a minimum of 10 weeks. For many publicly traded companies, boards must review the proposed transaction. This can take 6–8 weeks to schedule.

Importance of the Data Room

Experienced brokers should provide an index of what data must be deposited (e.g., financial, management team, regulatory, client projects, supply chain, human resources, legal) in the data room. The broker can help to determine how to assemble the documents while maintaining confidentiality within the seller’s organization. Populating the data room can be a significant challenge for most sellers.

From Process Letter to Binding Offer

A good process is open, honest and fair. The process can have a local or international focus, and, depending on the transaction, different levels of confidentiality. Comparisons of different offers are made using information in the process letter, which details the requirements for initial letters of intent and non-binding offers. Sellers should prepare for site visits from potential buyers. This can create scheduling challenges. A strategy must also be established to guard against unnecessary speculation by employees. In some instances, the need for confidentiality may warrant limiting potential buyer visits.

Reaching a binding offer requires negotiations. Manufacturing carve-outs are the most complex — as they involve the conversion of cost centers into profit centers — and may require agreements regarding interim transitional services for enterprise resource planning and other complex systems. The broker plays an important role in facilitating this process, including preparing draft transaction documents in advance and ensuring that both internal and external legal counsels are moving the process along promptly. Sellers must have realistic expectations regarding the timeline and the level of effort required to prepare for a transaction, as well as the projected value.

Meet PharmaBioSource

For 18 years, PharmaBioSource has been providing a thorough and comprehensive suite of brokerage and advisory/consulting services, helping clients to streamline business processes, find new facilities, expedite mergers and sell assets. We leverage our broad experience as engineers, scientists and industry specialists to provide expert M&A, real estate and technical knowledge through in-depth industry experience to enable our clients to grow and thrive in a changing marketplace. 

PharmaBioSource has facilitated over 100 transactions around the world and has an established network of personal contacts throughout the industry, a distinct advantage when identifying and contacting potential buyers.

William B. Wiederseim

Mr. William (Bill) Wiederseim has been a consultant to the pharmaceutical, chemical and automotive industries for more than 20 years. He is the co-founder and First Executive Director of the Consortium for the Advancement of Manufacturing in Pharmaceuticals (CAMP), a non-profit research consortium for the Pharmaceutical Industry, MIT and Purdue University. Mr. Wiederseim has significant international consulting and M&A experience and is the founder and primary person responsible for the overall development of PharmaBioSource.