Abandoning Par IPO for $8 billion sale could help TPG with its own

By Greg Roumeliotis and Olivia Oran

(Reuters) - TPG Capital LP may have helped its own campaign to go public after pulling Par Pharmaceutical Holdings Inc's IPO.

TPG was preparing to begin an IPO investor roadshow for Par Pharmaceutical Holdings before it agreed to sell the generics drugmaker to Endo International Plc for around $8 billion. TPG bought Par for $1.9 billion in 2012.

TPG, an alternative asset manager with more than $67 billion in assets under management, has aspirations to go public, and sees it raising a new $10 billion global private equity fund as a prerequisite to that, according to internal documents seen by Reuters.

 

Par's outright sale to Endo, which was announced earlier on Monday, provides an immediate boon to that fundraising. TPG had previously registered Par with regulators for an IPO, and it would have taken months, possibly years, for it to sell down its stake in Par once it had gone public.

TPG and its co-investors now stand to make seven times their $868 million equity investment in Par over just three years, according to people familiar with the matter who asked not to be identified discussing confidential information.

"This will have a significant impact on TPG's performance as well as the deliberations of some potential investors sitting on the fence. For TPG, it's like saying, yes, we may have had some problems in our last fund, but we got our mojo back," said Kelly DePonte, managing director at private equity advisory firm Probitas Partners LLC.

Founded in 1992 by David Bonderman and James Coulter, San Francisco and Fort Worth-based TPG has been trying to raise $10 billion for its flagship fund, TPG Partners VII, for close to two years.

Some investors were sceptical because a few of TPG's company bets have gone sour, most notably bankrupt Texas power utility Energy Future Holdings Corp, casino operator Caesars Entertainment Corp and floundering bank Washington Mutual Inc.

In response, TPG raised a $2 billion "bridge" fund last year to tidy it over until it raises the new flagship fund. It has also exited some of its portfolio companies and returned cash to its fund investors at a big profit.

For example, it sold another drug maker, Aptalis, to Forest Laboratories last year for $2.9 billion, equivalent to three times TPG's $401 million equity investment, according to TPG documents.

Indeed, the sale of Par far exceeded TPG's own expectations. In fundraising documents for TPG Partners VII, Par was marked at just 2 times TPG's money as of the end of June 2014, rather than the 7 times multiple it subsequently agreed to sell Par at.

Now with the firm more likely to meet its fundraising target for TPG Partners VII, it has stepped up its preparations to follow peers such as Blackstone Group LP , KKR & Co LP and Carlyle Group LP in going public, according to people familiar with the matter, who declined to be named because they are not authorized to speak to the media.

TPG declined to comment.

SPOTTING A WINNER

TPG took Par private in 2012 for $1.9 billion, at a time when the stock market was punishing generics drugmakers that lacked scale. Par had been pressured to explore a sale by activist hedge fund Relational Investors LLC.

Three years later, Par has grown significantly and become one of the industry's darlings, which made Endo Chief Executive Rajiv De Silva hungry for a transformational deal after his company lost out earlier this year to Valeant Pharmaceuticals International Inc in its bid for Salix Pharmaceuticals Ltd. He made multiple offers to TPG over the last two weeks until he clinched a deal, according to people familiar with the matter.

The rise in Par's popularity is partly due to its industry's consolidation, as a wave of dealmaking has left fewer players in some sectors of the market with high barriers to entry. Some generic drug manufacturers have also been able to boost margins by charging more for their products in recent years.

Based in Woodcliff Lake, New Jersey, Par has increasingly focussed on drugs that are difficult to formulate and manufacture, or face complex legal and regulatory challenges. These include digestible capsules, injectable drugs and nasal sprays. With the acquisition, Endo will now have one of the largest generic drug businesses in the world.

TPG also helped grow Par. It promoted Par Chief Operating Officer Paul Campanelli to CEO when it acquired the company. He gained a reputation as a savvy executive who quickly brought new products to market. He will now lead Endo's generic business.

TPG also tripled research and development spending at Par and also grew it through acquisitions. As a result, Par had more than 200 products in its pipeline as of the end of December. It reported adjusted earnings before interest, tax, depreciation and amortisation in 2014 of $433.8 million, up from $306.9 million a year earlier.

(Additional reporting by Nadia Damouni in New York; Editing by Bernard Orr)