When Deutsche Bank signed on as adviser to IMS Health four years ago, the buyout market was red-hot. Through the lean times that followed, Deutsche stuck with IMS, deploying some 20 bankers to the account without a payday. Its reward was a $24 million fee for the first big leveraged buyout after the financial crisis: IMS’s $5.2 billion sale to TPG Capital and the Canada Pension Plan Investment Board.
IMS was one of the accounts brought to Deutsche by Ravi Sachdev when he joined the bank in 2006 from Peter J. Solomon Co., a New York investment banking boutique specializing in mergers and acquisitions in the health care sector. David Carlucci, chairman and recently retired CEO of IMS, had built the company into a market leader and was looking for the next growth opportunity. So in 2007 he hired Deutsche, which for the next two years advised the board on strategic alternatives, including a possible sale or recapitalization.
“In 2007 the credit markets were good and IMS was a natural LBO candidate,” says Sachdev, the lead banker to IMS. “It had strong market share, stability and free cash flow generation, but the credit markets had started to deteriorate, making an LBO challenging.”
Sachdev and his team, which came to include Bruce Evans, head of Americas M&A for Deutsche, met regularly with IMS’s board and management. “IMS deserves a lot of credit because it had a continuous process in place to look at ways of maximizing shareholder value,” says Sachdev, 34. “The secret of the success of the deal was that we, in conjunction with IMS, had already looked at so many alternatives, we were able to quickly take advantage of a change in the credit markets. This company did not suddenly have to determine if a sale transaction was the right alternative.”
Long an admirer of IMS, TPG had garnered sector experience through several deals, including the 2003 acquisition with Bain Capital of Quintiles Transnational Corp., a biotechnology and health care services company. “TPG differentiated themselves from the start with their knowledge of the sector, the speed in which they moved and their comfort in terms of offering the board strong deal protection,” Evans says.
TPG showed its commitment with a $2 billion equity check, and it also brought in GS Mezzanine Partners, which was prepared to underwrite $1 billion of the debt. “A lot of our discussions revolved around the terms of the reverse break fee,” Evans notes.
Reverse break fees, virtually unheard-of before the crisis, are now commonplace, but this was the first time they figured in a big deal. TPG agreed to pay $275 million, almost 10 percent of its total equity commitment, if it failed to follow through on the transaction.
Deutsche’s fee was based entirely on a successful deal and marked the bank’s first payday since it began working with IMS in 2007. “A lot of time and effort went into the relationship,” says Sachdev, who recently moved to JPMorgan. “But it was worth it because the TPG deal was the best possible outcome for shareholders.”
Other banks in on the action included Foros Securities, the boutique launched by Jean Manas, former M&A boss for Deutsche Bank Americas. Manas worked on the IMS account with Sachdev but quit the bank before the deal.
