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Lonza Nears Deal to Buy KKR’s Capsugel

Switzerland’s Lonza would pay over $5 billion for drug-capsule maker

Private-equity firm KKR & Co. is nearing a deal to sell Capsugel to Switzerland’s Lonza Group AG for more than $5 billion, as an auction of the New Jersey drug-capsule maker draws to a close.

Lonza is currently the leading bidder, according to people familiar with the matter, though one of them cautioned that a deal isn’t guaranteed and others may still be circling. It isn’t clear whether the price includes debt or not.

Capsugel, based in Morristown, N.J., makes capsules used for the delivery of drugs and food supplements. Its designs are used in vitamins, over-the-counter drugs, dietary supplements and prescription medicines. KKR bought Capsugel from pharmaceutical giant Pfizer Inc. for $2.4 billion in 2011.

The Capsugel auction attracted a mix of health care, industrial and Asian suitors, one of the people said.

Lonza, for its part, produces a wide range of chemical, health care and personal-care products. Founded in 1897 as an electricity supplier, Lonza has a market value of CHF9.4 billion ($9.2 billion), so a takeover of Capsugel would be a big bite.

Lonza has been scouring the landscape for deals. Earlier this year, it held abortive talks to buy drug-development company Catalent Inc. for around $4 billion, according to people familiar with the matter.

While overall health care deal-making has dropped from last year’s brisk pace, companies that provide ancillary products and services to the pharmaceutical and other segments have announced several combinations lately.

Blackstone Group LP in October agreed to lead an acquisition of healthcare-staffing provider Team Health Holdings Inc. for more than $3 billion. Software-and-data company IMS Health Holdings Inc. in October merged with outsourcer Quintiles Transnational Holdings Inc. in a deal worth nearly $9 billion.

Meanwhile, private-equity firms Carlyle Group LP and Hellman & Friedman LLC are seeking buyers for drug-research company Pharmaceutical Product Development LLC, which could fetch about $5 billion, The Wall Street Journal reported last week.

There have been $268 billion of health care deals announced so far in 2016, according to Dealogic, down from a total of $515 billion in all of 2015. Last year’s tally would have been even greater if Pfizer’s roughly $150 billion agreement to buy drugmaker Allergan PLC hadn’t fallen apart amid resistance from the Obama administration. The deal was to be a so-called inversion, moving Pfizer abroad for tax purposes. Indeed, resistance in Washington is one factor cited by deal makers for the drop in merger activity in 2016.