Friday, May 25, 2007

Will Warburg Pincus Fight?

Now this will be interesting to watch.

The news that Advanced Medical Inc. is pondering a counteroffer to Warburg Pincus’ bid to acquire Bausch & Lomb adds a whole new wrinkle to this already intriguing deal. And it threatens to once again turn private equity investing into a public spectacle.

This isn’t how Warburg Pincus generally operates. The largest and most experienced big-money investor in health care (we mulled over including "arguably" but we don't think there is an argument), Warburg Pincus tends to move fairly quietly in the medical device sector.

The First Rule of Private Equity ...

Deals for companies like Wright Medical and Tornier happened quietly over a long span of time with Warburg Pincus’ principals spending a great deal of time coaxing the deals into existence. Or if an auction was established—as was the case with American Medical Systems—Warburg was usually the only significant bidder. (Each link will bring you to detailed In Vivo accounts of the deals, which demonstrate Warburg Pincus' doggedness to get a deal done.)

We don’t know what happened on the front end of the Bausch & Lomb deal. No doubt, Bess Weatherman, who heads the device group, moved with the same adroit skill demonstrated in the past. But Bausch & Lomb is a public company, so you're never going to get a deal done quietly.

But now Warburg Pincus may have a fight on its hands.

It’s important to note that Advanced Medical—while suggesting Warburg’s offer undervalues B&L—is only pondering a bid. There are legitimate questions as to whether the company can put together a cash-only offer to compete with Warburg’s.

But, as other reports state, they may not have to go it alone. No doubt, there are enough private equity groups out there that might be willing to team up with someone who knows the market like Advanced Medical management. As far as we see it, that’s the only way Advanced Medical will be able to put up a fight. (Read more this in our upcoming June issue of In Vivo.)

There’s no question Warburg Pincus can give the fight right back—and win. But at what cost? Warburg Pincus always has worked best out of the public spotlight, so it could opt to drop the deal and go back to finding the deals that no one else knows about. Or it might have already valued in this sort of struggle into its initial bid, which only offered a 5.7% premium over the May 15 closing price of Bausch & Lomb stock.

We'll guess that Warburg Pincus will see this one through and get the deal done. First, it can. Second, it may have to. With all the attention private equity is getting these days in newspapers, talk shows, Congress and (gasp) blogs, we wonder whether those days of the quietly closed deals are gone.

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