Monday, March 25, 2013

Valeant to acquire dermatology company Obagi Medical Products for $310m net of cash

Valeant agreed to acquire Obagi Medical Products Inc. (OMPI‐Q, NR) for $19.75/sh in cash
or ~$310M net of cash.  This is the second transaction by Valeant and fourth one in the recent past in the in the dermatology space. Obagi is a leader in topical aesthetic and therapeutic skin‐health systems with a product portfolio that includes the Nu‐Derm suite of  products. The majority of Obagi’s products are OTC products and dispensed directly by physicians in their offices. Obagi is estimated to have a 27.7% market share of the skin health segment for physician dispensed products and is considered the leading company with more than twice the share of its next competitor.

Transaction Rationale

The transaction will yield  synergies in sales and distribution. Valeant has products like Kinerase through in phsyician dispensed skin care market. Valeant  will likely use the additional scale to move more products into this channel as it offers higher margins due to the avoidance of pharmacies. This channel also helps to elongate and preserve a high level of cash flows for products as a physician’s office is a much
less competitive environment for OTC products due to the limitations of space. In addition, the strength of a brand can be enhanced by the exclusivity of being offered solely by physicians. Recall, Allergan bought SkinMedica which also promotes products through this channel for ~5x sales.

Transaction Valuation

Obagi had revenues of $120M in 2012. Valeant paid ~$310M for the company or ~2.7x  EV/sales, which is much lower than other transactions in the same space
  1. Sun acquires DUSA
  2. Valeant acquiring Medicis and  
  3. Sandoz acquiring Fougera. 

Obagi Product Portfolio