Novartis dashes private equity hopes with public Sandoz spin-off; Exits getting tricky for funds

Good morning Eurohubsters, it’s Craig McGlashan here with the Dealflow.

I always like to finish the week on an upbeat note so, as promised, I’ll be listing some of the best Pink Floyd/private equity headlines sent in by readers (see yesterday’s Dealflow for details). But first, a little bit of bad news from a dealmaking perspective, with some potential deals not reaching the finish line.

Going public. It looks like a couple of private equity firms are going to miss out on the chance to buy part of multinational pharmaceutical corporation Novartis.

Blackstone and Carlyle with a $25 billion joint bid as well as EQT with a separate offer were among the private equity names rumoured a few months ago to be looking at Sandoz, the generics and biosimilars division of Basel-headquartered Novartis.

But yesterday, Novartis announced that while it would be separating Sandoz, it would be via a 100 percent spinoff into a new publicly traded standalone company. Sandoz will be headquartered in Switzerland, listed on the SIX Swiss Exchange and have an American Depositary Receipt programme in the US.

“Our strategic review examined all options for Sandoz and concluded that a 100 percent spin-off is in the best interest of shareholders,” said Joerg Reinhardt, chair of the board of directors of Novartis. “A spin-off would allow our shareholders to benefit from the potential future successes of a more focused Novartis and a standalone Sandoz, and would offer differentiated and clear investment theses for the individual businesses.”

No exit. Staying in healthcare, Ardian is reported to have postponed plans to sell a majority stake in Florence-based healthcare software firm Dedalus.

Bloomberg cited people with knowledge of the matter who said that Paris-based Ardian has put the process on hold due to valuation and financing concerns. Ardian had looked to value the business at over €3 billion.

We’ve been hearing a lot about such concerns. Back in late July, Riverside Europe managing partner Karsten Langer told me that he sensed a shift from “probably the best seller’s market, frankly, that anybody in our industry has ever known”.

“We made the decision at the beginning of 2021 to focus on exits quite a lot,” he added. “Just from my fund in Europe, in the last year we did one IPO and five trade sales. On the other hand, we had a hard time buying things while remaining disciplined on pricing. That is shifting a bit now. We’ve announced two investments this year so far.”

A couple of weeks ago, Jean-Baptiste Wautier, partner and chief investment officer, private equity, at BC Partners pointed out just how tricky exits were becoming.

“Exit optionality remains limited,” he told PE Hub Europe. “Valuations are not necessarily fully factoring in underlying company fundamentals and are more a reflection of dislocation in capital markets. Even if valuation expectations are revised down, financing is still required in most cases to properly execute.”

Success. Despite those worries, we can finish on a high note from an exit perspective.

LDC has announced that it has exited its investment in Littlefish to Bowmark Capital after a three-year partnership with the IT consultancy.

Littlefish, headquartered in Nottingham, England, offers managed IT, cyber security and cloud services to public and private clients. Since the minority investment from LDC in April 2019, Littlefish has almost doubled revenues from £18.6 million ($22.0 million; €22.0 million) to £36.4 million in its latest financial year. The company has also more than doubled its headcount to over 450 employees across the UK.

The buyer, Bowmark Capital, is a London-based private equity firm founded in 1997 that invests in technology and services companies.

The exit is LDC’s fifth in the last 12 months. LDC has also invested over £250 million in more than 10 tech-led businesses in the past 12 months including an investment in digital transformation provider CTI Group, IT services specialist Aspire and mobile and internet of things communications company Cellhire.

LDC is the private equity arm of Lloyds Banking Group and is based in London.

The results are in. Given yesterday’s news that Blackstone is in the running to buy the back catalogue of English rock group Pink Floyd, I asked readers for their best private equity/Pink Floyd pun headlines.

We had such a great response that I couldn’t pick an outright winner, so Michael Baruch, associate at M2O Private Fund Advisors and Jonathan Simnett, director at Hampleton Partners, share the honours.

Michael’s winning entry was: ‘PE don’t need no education’

Jonathan’s was: ‘See equity pay’

Special mention needs to go to Jonathan who sent in several excellent entries, with some of my other favourites being ‘Take it Blackstone’ and ‘Wish you weren’t dear’.

That’s all from us this week. It’s a long weekend here in the UK so there’ll be no Dealflow on Monday.

Have a great weekend – and bank holiday Monday if you’re in the UK – and we’ll speak again on Tuesday.

Cheers,

Craig