TPG backs $176m ShangPharma MBO

Hui and TPG already own approximately 54% and 11% of ShangPharma, respectively. The US private equity firm originally invested in the company in 2007, paying $35 million for a 25% stake via TPG Biotech and TPG Growth. ShangPharma went public in 2010, with TPG generating $24.6 million through a partial sell down of its holding as part of the offering.

The buyout offer represents a premium of up to 40% on the company's June 5 closing price of US$6.80. The stock subsequently jumped to US$7.65, but remains down more than 30% on a one-year basis.

ShangPharma announced a 42.5% fall in net earnings per share for the quarter ended March 31, following a 24% drop for 2011 as a whole. This came despite a 23.5% year-on-year increase in net revenues for 2011. The company blamed plant expansion costs, increased depreciation and utility costs, and renminbi appreciation against the US dollar.

ShangPharma performs contract research work - including discovery chemistry, discovery biology and preclinical development - to international companies such as Eli Lilly and GlaxoSmithKline, as well as a number of domestic players.

Since April 2010, 30 US-listed Chinese companies have announced take-private deals, 14 of which have now closed, two of which terminated and 14 of which are still in progress. Eight of the 30 are private equity-backed management buyouts. In addition to Abax and Harbin Electric, successful PE-backed management buyouts (MBOs) include Abax Capital and Harbin Electric, Bain Capital and China Fire & Security, Primavera and Chemspec International, and PAG and Funtalk China.

Abax recently won board approval for its longstanding take-private offer for Fushi Copperweld.

Most of the companies targeted listed in the US via reverse mergers. After financial inconsistencies were uncovered in filings made by several firms, short-sellers and hedge funds have begun to scrutinize many more, searching for weaknesses. Stocks have fallen across the board, prompting management teams to consider privatizations with a view to relisting in Asia, although transactions are challenging to execute.

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• Topics
• North America
• Greater China
• Buyouts
• Healthcare
• TPG Capital
• buyout
• China
• USA
• healthcare