Business
How to spend it
Private equity players fi ll a key role in supporting portfolio companies’
growth strategies and boosting their value offering. Axel Malkomes and
Dr Brian Hargreaves take some time out from assessing and implementing global
healthcare-focused investments to explain 3i’s investment philosophy to Pete Chan
DR BRIAN HARGREAVES
I
nvestors, by their very nature, aim to make
smart decisions when it comes to spending
Box 1: 3i fast facts
their capital and look to enjoy a healthy
return on their investments. But what makes
• FTSE 100 company with an international team of
30 healthcare investment professionals operating
a compelling proposition given the current
from 14 countries across Europe, Asia and North
tumultuous state of the financial markets?
America
3i, a world leader in private equity, invests
• Focus on buyouts, growth capital, infrastructure
in pharmaceuticals, medical technology and
and quoted private equity, investing in businesses
care services companies valued at up to with an enterprise value of up to €2 billion
€2 billion across Europe, Asia and North
• Invested €1.6 billion in 36 healthcare companies
America. And despite the challenging financial worldwide and realised 25 healthcare investments
markets, its dedicated healthcare team
through IPO and trade sale since April 2001
continues to see plenty of opportunity; using
• Invested over €700 million in pharma companies
its deep sector insight and networks the
since April 2001
team has committed €820 million to seven
AXEL MALKOMES
healthcare companies in 2008.
get products to the market as quickly as they
can so, in general, we see the proportion of
attractive areas of investment
outsourcing increasing.” Dr Hargreaves points
In 3i’s view, there are many attractive areas
out that another important factor is the “new
for investment in pharmaceuticals, including
breed of CEOs coming into pharma, who are
outsourced services, value-add generics and
prepared to make changes and as a result, we
speciality pharma.
are seeing a move towards strategic
Companies making up the outsourcing
outsourcing”.
sector range from CROs and CMOs, through
In the clinical outsourcing space, 3i’s recent
to contract sales and marketing organisations,
deals have included a significant minority
and providers of distribution or other
investment in Quintiles and an investment in
logistics services to pharmaceutical
Siro Clinpharm, a leading Indian CRO.
customers.
“Our global footprint, sector insight and
Current growth in the market for
deep networks make us an ideal partner for
outsourced services reflects broader trends
businesses operating in the international
that are sweeping across the industry. A
arena,” explains Dr Hargreaves. “We are one
recent reshaping of pharma business models,
of the few firms that can boast this”. These
for instance, is transforming some of the
factors played a major part in Quintiles
industry’s bellwethers and forcing large
choosing 3i as a financial partner. “We
players to offshore non-core, and in some
demonstrated the value that we will bring to
cases even core, functions. “This relates to a
their business.”
significant proportion of R&D and
Another interesting area is what
manufacturing,” comments Axel Malkomes, a
Mr Malkomes calls “value-added” [as opposed
Frankfurt-based buyouts director in 3i’s
to “commodity”] generics. He clarifies the
healthcare team.
distinction: “We don’t simply want to follow
“For a private equity player”, explains
the market into traditional generics
Mr Malkomes, “the outsourcing area within
businesses. We want to target generics
healthcare overall is attractive as we’re talking
companies that have a specific value-add or
about services – businesses that enjoy solid
niche play – differentiated via drug delivery,
underlying market growth with good, stable difficult to make/complex products,
cash flows, based on long established geography or specialist therapy area.” For
customer relationships, ie, at the lower end of example, 3i backed the €300 million buyout
the risk spectrum”. of Betapharm, supporting the company’s
Pharma’s push for increased efficiency isn’t strategy of becoming one of the largest
just about achieving cost-savings. The generic prescription drugs groups in
requirement for quality and reliability is Germany. Following the strengthening of
paramount and a given. And companies are Betapharm’s senior management team, and
also concerned about timelines, adds two years of impressive growth, India’s
Dr Brian Hargreaves, 3i’s London-based Dr Reddy’s then bought the company for
sector partner for healthcare. “They want to €480 million in 2006.
28
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