Click here to return to the news listings page.

Going Public Magazine interviews Stefan Constantin of C.H Reynolds on Biotech
10th May 2011

When thinking about M&A transactions in white biotechnology, there are some particularities that need to be observed as they don’t occur in other industries including red biotech.

GoingPublic magazine interview with Stefan Constantin, Partner,
C H Reynolds Corporate Finance AG.

Download the attached PDF at the bottom of page for the original article.

When thinking about M&A transactions in white biotechnology, there are some particularities that need to be observed as they don’t occur in other industries including red biotech. M&A consultant Stefan Constantin from C.H Reynolds explains what matters when making deals in industrial biotechnology.

GoingPublic: Mr Constantin, you executed several deals in the white biotechnology field. What are the particularities compared to other industries?
Constantin: Generally, we are talking about technology transactions more than sales or profitability driven transactions. Often, the size of the target company is only a small fraction of the size of the buyer. The turn - over range of most targets lies between single-digit and double-digit millions, whereas buyers are often medium-sized or multi-billion companies. Another particularity is that the span of the potential buyers universe is much wider than in other industries.

GoingPublic: Does this refer to industries as well as to company sizes?
Constantin: Yes, but it also shows the different positions in the value chain. The range of interested companies varies from big chemical and pharmaceutical players producing patented consumer end products, generics, detergents, food supplements or scent and flavor substances to active ingredient (API-)manufacturers or medium-sized or big suppliers of inter mediates. Real Biotech-Competitors show interest in acquisitions
as well although only few of them are financially strong enough to acquire. Depending on the development stage of the target company, corporate VCs are amongst the interested parties, too.

GoingPublic: Is the acquisition of technology the main driver, or do competitive aspects also play a role?
Constantin: As part of the sales process you have to bear in mind different aims for each interested group.
Companies like Pfizer, Boehringer or Henkel as well as big suppliers are interested in the savings within their own production process, e.g. replacing three chemical steps by one organic step. Competitors are more interested in complementarity or in different technologies.

GoingPublic: What exactly are the differences between the red and white biotechnology in terms of trans actions?
Constantin: There are huge differences in relation to the structures of transactions: The white biotech business model is often wider in potential applications and contains out-licensing and co-operations with big companies already. The business models in the red biotech area are more focused with every clinical phase, leaving diagnostics and other red biotechs aside. As a consequence, the range of potential exit buyers rather gets smaller than bigger as the company progresses.
Additionally, red biotech companies are ultimately bought when their development phase is coming to an end. In the area of oncology for example, there are in certain situations only five or six global players that can be considered as potential buyers.

GoingPublic: Do white biotech companies have to reach a certain stage of development in order to raise interest, or is technology itself the main driver?
Constantin: In contrast to the red biotech industry where each clinical phase reached limits products, and helps for the next financing round, even young white biotech companies can raise an enormous amount of interest.
What matters is whether they are able to prove the functionality of their products in large scale areas. We think that at least two or three anchor projects in the context of co-operations or out-licensing with industrial partners are necessary to get the sales process going.

GoingPublic: Which role do VC and Private Equity play in the early stage of financing as well as on the vendor side?
Constantin: VC investors play a dominant role in financing. At a certain time, they are looking for exit possibilities. They have to support the management in their clear strategy in order to gain sufficient return on investment. Therefore company structures with regard to IP and sales force have to be positioned in such a way that they can be introduced into the market. In other words: Organizational support and strategic
investments are needed. VC alone cannot always deliver that. Due to the sizes of investments, Private Equity rather plays a supporting role as developments in white biotech are part of their equity stories for the bigger investments like Cognis, Evonik or Süd-Chemie, being hold or held by Permira, CVC or OEP. In white biotech, Private Equity is rarely seen as direct buyer.

GoingPublic: Even though VC-financing plays a dominant role, isn’t there a need to catch up in comparison to the red biotechnology?
Constantin: Yes, absolutely. Playing a dominant role in this case does not necessarily mean: on a high level. In Europe and the U.S., there is only a limited number of VC-financed white biotech companies. Their number is rising, also due to cost pressure within the pharma/ chemical industry and the suppliers. This is underpinned by the increase in co-operations.

GoingPublic: In Germany, white biotech has not yet entered the stock exchange …
Constantin:We think that there are four reasons for this: First, we are talking about extremely complex products or processes that can be introduced into several application areas. Furthermore, the business model requires technology to be up-scaled on an industrial level which needs further investment.
Additionally, the question arises where the company will position itself in three or four years when it “should” also deal with sectors like the food industry. Can the company sufficiently grow without an exit to a strategic partner? Or will it be taken over and vanish from the stock markets? The equity story is important: Chances and risks are difficult to communicate to the

GoingPublic: When listed on the stock market, the capital market could offer a reasonable financing alternative …
Constantin: This is generally true, but to a certain extent,
it depends on customers and products. B.R.A.I.N, an intelligently and broadly positioned company, is often considered as a stock market candidate. But sales teams for the different segments adhesives, pharmaceuticals etc. have to be financed – potentially also using Venture Capital. Again, the question arises: Where does the company want to stand in four years? A supplier for big players? There are other companies
beyond the mark of EUR 300 million in sales able to either develop white biotech by themselves or to acquire it.

GoingPublic: How important is the international aspect for transactions in white biotech?
Constantin: An international capacity is crucial for selling white biotech companies. We felt that in all our processes. Some companies don’t pay attention to this size of potential targets, e.g. suppliers of the pharmaceutical industry with a turnover of 300 to 400 million Euros which themselves have been thinking
about getting involved with biotechnology but didn’t make it. Addressing international companies on a strategic level is essential for success.

GoingPublic: Not only across the borders, but also across continents?
Constantin: Absolutely. Just look at Indian generics producers: They are observing the German market very carefully.

GoingPublic: Mr Constantin, thank you very much for this informative interview.

read more


For more information, please contact Stas Michael on +44 (0)207 881 2990 or