Cinven, an European private equity firm, has reached agreement to acquire UK-based specialty pharmaceutical company, Mercury Pharma (Mercury), as a platform for further industry consolidation. The company has been acquired from HgCapital for an enterprise value of £465 million.

Mercury markets niche and branded pharmaceuticals, with its customers including retail pharmacies and hospitals in the UK, as well as international markets. It has a strong focus on the UK although its products are sold globally in more than 50 countries incorporating Southeast Asia and the Middle East.  The Company has a broad portfolio of well-established products including treatments for anaesthesia, anti-psychotic, arthritis and anti-inflammatory, cardiovascular, critical and emergency care, joint and musculoskeletal, pain and pulmonary arterial hypertension.

Cinven's healthcare team identified niche pharmaceuticals as an attractive segment on the basis that: it is comparatively insulated from patent expiry issues which affect the broader pharmaceutical industry; it is a relatively fragmented market, providing opportunities for a 'buy-and-build' strategy, in particular, given Cinven's significant ability to identify add-on opportunities through its sector expertise; and it benefits from underlying demographic trends that will result in more patients requiring treatment with the cost-effective products in Mercury's extensive portfolio.

Headquartered in Surrey, UK, Mercury has operational bases in the UK, Ireland and India. The company has generated strong revenue growth in recent years with sales well over £100 million.  It has a highly experienced management team, led by John Beighton, group chief executive, who joined Mercury in 2010. He was previously UK managing director of Teva and formerly at SmithKline Beecham.

Commenting on this transaction, Supraj Rajagopalan, a partner at Cinven, said: "We identified niche and branded pharmaceuticals as an attractive segment and, within that, Mercury as a strongly performing business. In addition to its excellent existing product portfolio and pipeline - both of which should drive strong organic growth - it is a fantastic platform for further consolidation both in the UK and internationally. Our in-depth knowledge of this sector, given our long-term focus on healthcare, has enabled us to identify a number of compelling acquisition opportunities which we hope to execute in the early stages of our investment."

"Despite the challenging macroeconomic environment, there will continue to be demand for the essential medicines provided by Mercury. In a number of areas, Mercury is actually able to work with payors to reduce costs to the healthcare system.  We are delighted to be working with John and his team to implement our shared vision for the company."

"Our investment in Mercury demonstrates our focus on acquiring European-based companies with significant international growth prospects, as well as our ability to originate investments through our strong sector focus."

John Beighton, CEO of Mercury Pharma, added: "In the past two years, the Mercury business has been streamlined to refocus on its core specialty pharmaceutical products. We have a well-diversified product range with high barriers to entry and are investing in creating a pipeline of similarly specialist medicines.  Our 15 new products launched in 2011/12 are already starting to show earnings momentum and we have a strong product pipeline. Despite the current economic environment, our products and company are extremely well positioned."

"We are delighted to be partnering with Cinven who, with their experience in both healthcare and 'buy and build' strategies, will provide invaluable expertise and investment as we enter this next phase of growth."

Cinven has a strong track record in the healthcare sector.  In 2011, it sold Phadia Group, the leading in-vitro allergy diagnostics business, based in Sweden, to Thermo Fisher Scientific Inc. for an enterprise value of €2.47 billion which generated a 3.4x return multiple to its fund and represented a capital gain of around €1 billion.  To date, Cinven has made 12 investments in the healthcare sector (excluding Mercury) representing €2.4 billion invested capital and generating returns of 3.1x on exited investments.

Advisors on this transaction included: Deloitte (for commercial, financial and tax) and Clifford Chance (for legal).