Injecting Private Equity into Allergy Immunotherapy: A Case Study on the Feasibility and Attractiveness of Acquiring ALK-Abelló through a Public-to-Private Leveraged Buyout Transaction

Abstract

Private equity has built up a whopping US$2.9T of uncalled capital, and a growing investor base is looking to place funds in alternative investments. Investigating deals outside traditional industries is becoming more prevalent as private equity firms operate in an environment characterized by high price multiples, large dry powder, and increased competition. The purpose of this thesis is to investigate the feasibility and attractiveness of a hypothesized public-toprivate transaction of biopharma company ALK-Abelló (ALK) through an LBO while also providing a framework for practitioners interested in navigating the complex environment of specialty pharmaceutical companies. A strategic analysis is carried out focusing on external and internal factors affecting ALK. ALK is operating in a regulated industry with pressure affecting reimbursement rates. Conversely, they face sound structural socioeconomic trends where aging populations and chronic diseases are on the rise and drive overall market growth. Industry competition focuses on price and being first to market with new treatments. Furthermore, ALK only has one resource that partly exhibits the characteristics of a sustainable competitive advantage. Next, a financial statement analysis is performed, indicating that ALK’s return on invested capital has worsened, caused by a new management team streamlining the firm. Grounded in the historical analysis and management expectations, a base case forecasting scenario is established by concretizing key financial value drivers. Next, a value creation plan is formed, with operational and organizational considerations for building on the base case forecasts, thereby constructing the foundation for the sponsor case. Sponsor case forecasts are developed, laying the groundwork for a contemplated transaction model, where ALK is delisted from the stock exchange. The contemplated leveraged buyout model’s in-and outputs regarding financing structure, purchase price allocation, and the subsequent impact on pro forma financial statements are all elaborated on in detail. Based on the leveraged buyout analysis, a 5.3% internal rate of return (IRR) is realized in the sponsor case. The analysis is accompanied by additional value creation scenarios through a dividend recapitalization and add-on acquisitions, resulting in only marginally increased returns. This thesis further introduces several sensitivity analyses to contemplate how returns are impacted by changing the model’s inputs. General findings are discussed concerning the assumptions and delimitations of this thesis. However, the conclusion is not affected materially by these. This thesis concludes that a take-private deal of ALK is neither feasible nor attractive on a risk-adjusted basis to satisfy the general return requirements of PE firms.