You’re reading Value Add’s weekly briefing, the leading newsletter for the operating side of private equity. Here’s what you need to know this week, from insights for PE-backed executives and portco news to recent buyouts and investment trends. 

Insights

Chart of the Week: Private equity deals in the consumer retail and services industry were up 31% YoY in Q2 2024, according to a recent Pitchbook report, suggesting the sector’s making a comeback. It’s a good time to revisit one of the most successful turnarounds of a PE-backed retailer: BJ’s Wholesale. Learn how CVC Capital and Leonard Green & Partners helped transform the retailer by expanding its private label offerings and investing in IT and eCommerce. (Read More)

More Insights

• The Unexpected Impact of Family Offices on PE Portco Operations (Read)
• Are PE-Backed Companies More Likely To Go Bankrupt? It’s Complicated. (Read)
• Apollo: “You Can’t Talk in the ESG, Alphabet-Soup Jargon” to CFOs (Read)
• Exits Are More Sensitive to Interest Rates Than Buyouts (Read)
• History Shows Interest Rates Alone Have Marginal Impact on Buyout Activity (Read)

Spotlight

Dueling for Doliprane. The plan to spin out Sanofi’s consumer health business – the world’s third-largest over-the-counter drugmaker – began nearly one year ago to date, when the firm announced its intention to follow in its competitors’ footsteps and spin out the business to raise capital for R&D. 

Since then, the fight between private equity players to take hold of the asset has been strong. Early bidders included Advent International, Blackstone, Bain Capital, CVC Capital Partners, KKR, and Cinven. By September, that pool had narrowed to two leading bids: one from CD&R, and another from a consortium led by PAI Partners with backing from British Columbia Investment Management, the Abu Dhabi Investment Authority, and the Singaporean sovereign wealth fund GIC.

Last week, CD&R emerged victorious, entering into exclusive negotiations to buy the asset for a €16 billion valuation ($17.3 billion), with €1 billion of CD&R’s capital coming from a payment-in-kind loan from private credit funds and another €8.65 billion coming in the form of euro- and dollar-denominated loan and bond financing from a consortium of 22 banks. 

It was a tough deal to negotiate, but its completion hasn’t been met with raucous applause. Rather, the CD&R has faced swift political backlash, pressure to rewrite the terms of the deal, and a “surprising” re-bid from former competitor PAI Partners. 

L’Arc (narratif) de Triomphe. The deal originally struck by Sanofi and CD&R not even two weeks ago entailed a trade-off of a 50% equity stake for €15 billion. French officials from the left, right, and center were quick to denounce it, arguing that foreign capital involvement would threaten the security of France’s domestic medicine production – a key issue in the country since the pandemic caused widespread pharmaceutical shortages. 

And, in true French fashion, strikes followed soon thereafter at the two factories in France that make Doliprane. The rolling strikes, which are currently ongoing, are led by French workers’ unions the CFDT and CGT. The factions were initially opposed to the mere creation of Opella in 2021 because they feared that it would lead to a spinoff and eventual reshoring. 

In the end, CD&R seems to have salvaged the deal despite ongoing labor backlash – but not without a heightened valuation of €16 billion (14x 2024 EBITDA) and major operational concessions. 

For example, France’s state investment bank, Bpifrance, will receive a 2% equity stake and a seat on Opella’s board of directors for €150 million. Additionally, CD&R has agreed to a €100 million fine for every economic layoff of a French worker. Sanofi currently employs 1,700 individuals in the country. 

Opella would also have to pay a €40 million fee if it halts production at either of its two Doliprane manufacturing facilities over the next five years, as well as a €100 million fine if it doesn’t buy the active ingredient in Doliprane from a French supplier (Seqens) by the time it opens up its plant in 2026. 

And finally, CD&R promised to invest €70 million in Opella’s French operations in order to keep its headquarters in the country. 

The new deal is expected to close by Q2 2025 at the earliest. That is if members of parliament don’t block it. Even one of Macron’s own, Charles Rodwell, has claimed that CD&R’s revised deal does not "indicate a commitment for the long term, whether on investment, supply or jobs” and that he would take actions to block the deal if ministers fall short during the oversight process. 

En Marche? Before the Sanofi debacle, CD&R lost out on its bid to acquire German drugmaker Stada to GTCR last month. That’s because the fight for Opella is just one battle in CD&R’s broader campaign to beef up its exposure to pharmaceuticals and consumer healthcare. 

In 2019 CD&R chose Jean-Luc Belingard – the former CEO of bioMérieux, Ipsen Group, and Roche Diagnostics – to serve as an operating advisor to its European healthcare platform. Then, in 2022, Anand Shah – former deputy commissioner of the US Food and Drug Administration – was given the same title in the US. 

None of CD&R’s current healthcare assets play in the consumer healthcare, over-the-counter drug space. However, it did have one asset in the past with a particularly rocky history: High Ridge Brands, which filed for bankruptcy at the end of 2019, three years after CD&R acquired it. As of spring of this year, CD&R still faces legal challenges surrounding fraud allegations from the asset’s liquidation trustee. 

The French Ministry of Finance and CD&R did not respond to requests for comment.

Buyout News​​ 

Another drawn-out deal saw its conclusion last week: Permira’s take-private of Squarespace. The company was officially delisted from the New York Stock Exchange, with Permira’s all-cash transaction valuing the company at $7.2 billion.

Another take-private in the software space from last week was Zuora’s $1.7 billion deal with Silver Lake and GIC. The private equity firm and the Singaporean sovereign wealth fund paid an 18% premium for the billing software provider, and the deal is expected to close in Q1 2025.

And on the flip side, we saw the announcement of a “take-public” last week, too. Platinum Equity filed its intention to IPO hardware manufacturer Ingram Micro. While the firm was hoping for a $10 billion valuation (raising $1 billion) in May, it has since lowered its expectations to a $5.4 billion valuation (raising $428 million). 

And finally, Blackstone and TPG are working on a joint bid for Bausch + Lomb, a contact-lens manufacturer. The deal could value the company at $11.5 billion including debt. The two groups have been trying to buy the business since before its parent company IPO’d in 2022. Now seems the right time to strike again, given that said parent company Bausch Health is facing ever-growing debt troubles. Formal bids are expected as early as the end of the month.