Thursday, October 01, 2009

Talecris | And Then There Were Three!

Part of the [C]LSDF ongoing series Watching the Bio IPO Market.

Talecris Biotherapeutics (NASDAQ: TLCR) made a thunderous debut with its Initial Public Offering on the Nasdaq today, offering 50,000,000 shares at $19 and raising $950M in the process. The fun however, did not stop there as the third life science offering of the year powered through the remainder of day, ringing the closing bell at $21.15, or a market cap of ~$1.06B! Speaking of ringing the bell, look for Talecris CEO Larry Stern to ring the opening bell at the Nasdaq on Friday morning (2 October 2009).

According to the [C]LSDF IPO Watch List the three companies to get out this year have raised in aggregate ~$1.85B, what is of particular interest is how they have responded by the very least maintaining or bettering their opening valuation (see price chart below).

What I find to be of particular interest in the case of Talecris is the story behind the story – or more specifically, the early investors who were handsomely rewarded by the street today. Just to put this tale into context Talecris is a robust entity, 2008 financials indicate revenue of $1.4B and a net income of $66M and thus account for (IMHO) the makings of a completely legitimate offering from a (potential) going-concern perspective.

Back in 2005 private equity (then) behemoth Cerberus Capital Management and Ampersand Ventures acquired from Bayer (XETRA: BAY.DE) their Talecris (then NPS Biotherapeutics) franchise for $590M, as part of a reorg effort. In the interim Cerberus placed some massive bets on Chrylser, who filed for bankruptcy protection and GMAC, who found themselves in need of a government bailout to the tune of $5B. Needless to say Cerberus was taking their lumps and the limited partners were clamoring for a return of their capital therefore, a liquidity opportunity for Talecris was paramount; the first shot came via a planned IPO circa 2007 but as the public markets then turned to ice the filing was killed; strike one. The next effort came back in August of 2008 when a potential monster $3.1B deal for Talecris was placed on the table by Australian blood plasma company CSL, this deal however fell apart primarily due to antitrust concerns. So in 2009 third-times-a-charm and Talecris finally gets out, in a still challenging environment.

What does this IPO mean to Cerberus? Well, various sources have reported that the fund owned 74% of Talecris prior to the IPO and retained approximately 38% post IPO, based on day 1’s closing price that values their piece of the action in the ballpark of $400M but don’t feel too bad for Cerberus as it appears as though over $800M in dividends were distributed in 2005-06. So all in maybe a return of $1.2B, call it maybe 2.5-3X. It is being widely reported that Cerberus was all in for less than $100M and therefore returns of 20-25X are being touted – I can’t quite get my head wrapped around that math and the distributions from a percent ownership perspective. If you know better than [C]LSDF, and that is probably most folks, will you please provide some insight? Or if there are any super-motivated MBA students out there I’m certain this would make for a fascinating case study. One thing I do know for certain is that the life science IPO market will remain an interesting place to observe.

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