Korean pharma deal shows value of R&D and brands

Kolmar Korea goes up the value chain with the acquisition of CJ Healthcare to keep one step ahead of potential digital disruption in the sector.

Drug companies are increasingly deploying artificial intelligence to analyse growing volumes of data for drug development. To acquire this know-how they are making deals, signing partnerships, and designing new product-launch strategies to boost market share.

In that context, Kolmar Korea is buying drugs-to-beauty products group CJ HealthCare for W1.31 trillion ($1.2 billion), according to a stock market filing late Tuesday.

A key attraction for Kolmar Korea, which largely makes drugs for other companies including L'Oréal and Estée Lauder, is that CJ Healthcare has its own branded products, such as its hangover cure CJ Condition launched in 1992.

CJ Healthcare also runs a research and development centre focusing on digestive disorders, anti-cancer drugs, and diseases that affect the immune system. The Seoul-headquartered firm is keeping abreast of new technologies and signed an agreement last year with Korea’s Syntekabio to conduct clinical trials in cancer immunotherapy drugs developed using AI. AI can cut the cost and time of drug development. 

The acquisition is a game changer for Kolmar Korea given its size.

CJ HealthCare is the only privately held pharmaceutical company in Korea among the top-10 largest players in the sector. The combined entity will have W1 trillion in sales, the companies said.

DETERMINED BID

Kolmar Korea’s share price ended 6.7% higher in Wednesday trading after news of the deal broke. And that's after it fought hard and paid a high price to win CJ HealthCare, underlining the perceived strategic value of the deal.

Kolmar Korea has been wooing CJ Healthcare’s parent company, Korean processed foods firm CJ CheilJedang, since last year. CJ CheilJedang is the largest subsidiary of CJ Group, with business across food and beverage, media, and logistics. The group has steadily been selling non-core assets.

Kolmar Korea enlisted other partners too including private equity firms H&Q Asia Pacific, Mirae Asset Private Equity, and STIC Investments, which will invest in the mezzanine financing during the buyout, according to two people familiar with the matter.

CJ CheilJedang ran an auction to try and get a higher price than Kolmar was offering and it hired Morgan Stanley. A flock of private equity firms showed interest, including Hahn & Co, Carlyle, CVC, and Bain Capital, but they struggled to match the valuation offered by the strategic local buyer, the people familiar with the matter said.

The pharmaceuticals business is heavily regulated and in Korea the unions are particularly powerful, making on-the-ground connections throughout the industry very valuable.  

Kolmar Korea offered 13 times CJ HealthCare’s Ebitda last year. CJ Healthcare’s board approved the deal on February 20, the same people said.

Deutsche Bank advised Kolmar Korea. Deutsche Bank previously also advised CJ Group on the sale of Rokin Logistics to CJ Logistics, the group’s logistics arm, for $565 million in 2015.

Kolmar Korea and CJ CheilJedang expect the deal to close on April 6.

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