Mallinckrodt Buys Ikaria in $2.3 Billion Hospital Treatment Deal

NEW YORK (The Deal) -- Mallinckrodt (MNK) said Thursday it would acquire private equity-owned Ikaria in a $2.3 billion deal that would expand its presence in the hospital neonatal intensive care unit.

Hampton, N.J.-based Ikaria is focused on therapies and delivery systems for critically ill infants in hospital settings. The company's lead product, Inomax, is a treatment for respiratory issues in term and near-term newborns.

The company is majority owned by Madison Dearborn Partners, a Chicago-based firm that bought into Ikaria in 2013 in a deal that valued it at $1.6 billion. In that deal, Ikaria's then-owners, a group that includes New Mountain Capital, Arch Venture Partners, Venrock and 5AM Ventures, got cash plus a 45% stake in a new parent company that was to focus on developing cardiopulmonary therapies.

Mallinckrodt, which was spun out of one-time Tyco International-unit Covidien (COV) in 2011, said the deal would significantly strengthen its footprint in hospitals and expand it beyond its diagnostic radiology and pain management specialties. The purchase also adds Ikaria's sales and marketing expertise.

"This transaction demonstrates our ongoing commitment to transform Mallinckrodt into a leading, high-performing specialty biopharmaceutical company with a diverse and durable portfolio," company CEO Mark Trudeau said in a statement. "With this expansion into respiratory neonatal critical care we expect to further broaden our touch points in the hospital market, and at the same time diversify our portfolio with durable assets that play vital roles in the treatment of vulnerable patient populations."

Mallinckrodt said that assuming a fiscal third-quarter close, the deal should add at least $150 million in net sales and contribute at least 25 cents per share to earnings in fiscal 2015. The company has entered into debt financing commitments to help fund the deal, saying it expects its net debt-to-EBITDA leverage ratio to be about 3.6 when the deal closes.

Ikaria was created by the New Mountain-led group in 2007 to acquire Ino Therapeutics, a leader in gaseous drugs, from Germany's Linde for $670 million.

Madison Dearborn has been active in the health care sector: In January, it acquired a majority interest in the infusion services business of Walgreens Boots Alliance (WBA) for an undisclosed sum. The firm's portfolio also includes infection control product maker Sage Products and recently-IPOed laboratory products provider VWR (VWR).

Goldman Sachs was financial adviser to Mallinckrodt, with a Wachtell, Lipton, Rosen & Katz team including partners Adam O. Emmerich, Benjamin M. Roth, Victor Goldfeld, Ilene Knable Gotts, Adam J. Shapiro, Eric M. Rosof and Jodi J. Schwartz providing legal advice, and Arthur Cox acting as Irish counsel.

Ikaria was advised by Kirkland & Ellis.

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