I’ve been speculating about a drug wholesaler go-private buyout transaction for some time, most recently in March (Wholesaler LBO Time) and in July (The British are Coming?).
The Wall Street Journal adds some fuel to the fire on Thursday with In McKesson, Some Foresee 'Value' Lesson, an article looking at prospects for McKesson (MCK).
Key quote: “Rick Schnall, a senior executive of buyout firm Clayton, Dubilier & Rice, said McKesson has one of the best managements in the health-care business. He said "many private-equity firms would love to figure out a way" to buy it, though he said it is unlikely that such big deals will take place until difficulties in the credit markets pass.”
For those who don’t know, CD&R is a top-tier buyout fund that has been very successful with distribution businesses. They are currently invested in large distributors of electrical supplies (Rexel), lab supplies (VWR), food (US Foodservice), and building supplies (HD Supply). Click here to see a selection from their current portfolio.
As I see it, McKesson is the most logical LBO target among the Big 3 wholesalers, especially given its business mix, current operating platform, and age of the management team. Their acquisition of OTN, while pricey, improves their leverage in the fast growing specialty distribution business. A buyout would provide a platform for a transformational restructuring and open up some intriguing domestic and international acquisition opportunities.
BTW, McKesson’s Net Debt-to-EBIDTA ratio was actually negative (!) based on second quarter financials, making the company especially attractive to private equity. (Net Debt = Short Term Debt + Long Term Debt – Cash & Cash Equivalents, so the numerator in this ratio is negative.) McKesson’s enterprise value is $17.1 billion, which is certainly affordable once the credit markets settle down.
Drug wholesalers are listening to Tony Blair at their Annual Leadership Meeting this week. The WSJ story should create some interesting hallway chatter.