As Endo acquires Par Pharma, is there an end in sight to “inversion” advantage?
American pharmaceutical companies that moved overseas, before the U.S. Treasury stopped the tactic, continue to reap great benefits through acquisitions and tax savings. The Wall Street Journal reports that Endo International will soon acquire Par Pharmaceutical Holdings for $8 billion. Endo is one of several pharmaceutical companies that relocated their headquarters from the U.S. to overseas, in this case, Ireland. According to the Journal, Endo, and their ilk, are “using their lower-tax foreign addresses as springboards for acquisitions in the U.S.,” steering tax revenue away from the U.S. in the process.
This practice of American companies moving their legal addresses overseas and then acquiring firms in the U.S., saving millions in U.S. taxes, is known as “inversion.” Last year the Treasury moved to stop these maneuvers but not before several American pharmaceuticals packed their bags, including Actavis, PLC and Valeant Pharmaceuticals International Inc. The prohibition to “invert” imposed by the Treasury did not affect these companies since they were already gone. Since leaving, these companies have taken over more than $125 billion in U.S. assets, according to FactSet.
This virtual permission that these pharmaceuticals have to “invert,” since later Treasury regulations did not apply to them, represents an important advantage over their competition, domiciled in the United States. According to the Journal, the U.S. has one of the highest corporate tax rates in the developed world.
The Journal reports that “two factors drive the tax arbitrage:” “First, the combined U.S. state and federal corporate tax rate is the highest in the developed world. Second, the U.S. taxes all profits of its companies, no matter where those profits are earned. Most other governments only tax profits earned in-country, which gives global firms based outside the U.S. wide leeway to minimize their tax bills.”
While the majority of U.S. firms are unable to “invert” due to new Treasury regulations, Endo and company plan to continue to reap the benefits of their early exit from the U.S. tax market.
“[Rajiv De Silva, CEO of Endo,] a former deputy of Valeant CEO Michael Pearson, another health-care M&A enthusiast, doesn’t appear to be done buying. In a written statement Monday, he said the Par deal creates ‘a powerful corporate platform for future growth and strategic M&A,’ according to the Journal.
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Dell to sell cloud-based iPaaS Boomi in US$4bn deal
Global investment firm Francisco Partners and private equity platform TPG Capital have entered into an agreement with Dell Technologies to acquire cloud-based integration platform as a service provider Boomi in a cash deal valued at US$4bn. The deal is expected to complete this year.
“Boomi has flourished as part of Dell Technologies, growing exponentially since we acquired them in 2010. This proposed transaction positions Boomi for its next phase of growth and is the right move for both companies, our shared customers and partners,” said Jeff Clarke, vice chairman and chief operating officer of Dell Technologies.
“For us, we're focused on fuelling growth by continuing to modernise our core infrastructure and PC businesses and expanding in high-priority areas including hybrid and private cloud, edge, telecom and APEX. All designed to help organisations thrive in the do-from-anywhere economy.”
Dell’s Boomi sell-off follows VMware spin-off
This announcement comes just two weeks after Dell said it would spin-off its 81% equity ownership of VMware to form two standalone companies. This would result in an expected US$9.3bn cash dividend payment to Dell, which says it will use those funds to pay down debt.
When Dell acquired Boomi in 2010 for an undisclosed fee, Boomi offered the industry’s only pure SaaS application integration platform, powered by its revolutionary AtomSphere technology. Dell saw Boomi as addressing one of the top barriers to cloud adoption at that time, which was managing and integrating cloud-based applications with existing applications and databases.
Now, Boomi has more than 15,000 customers globally and is still seen as a leader when it comes to organisations connecting applications, processes and people across a range of locations and devices – a process that can take weeks rather than months.
“I am incredibly proud that through innovation, passion and relentless execution, the Boomi team has created a unified platform for the modern-day hybrid IT landscape that thousands of customers worldwide depend on to digitally transform their business,” said Chris McNabb, chief executive officer of Boomi.
“By partnering with two tier-one investment firms like Francisco Partners and TPG, we can accelerate our ability for our customers to use data to drive competitive advantage. In this next phase of growth, Boomi will be in a position of strength to further advance our innovation and market trajectory while delivering even more value to our customers.”
Francisco Partners has invested in more than 300 technology companies since its launch 20 years ago and has more than US$25bn in assets under management.
“The ability to integrate and connect data and workflows across any combination of applications or domains is a critical business capability, and we strongly believe that Boomi is well positioned to help companies of all sizes turn data into their most valuable asset,” said Dipanjan Deb, co-founder and chief executive officer, and Brian Decker, partner, at Francisco Partners
Nehal Raj, partner, and Art Heidrich, principal, at TPG Capital added: “The need for automation and data integration across applications has never been greater. Boomi's cloud-native platform enables enterprises to streamline business processes and is essential for driving digital transformation.”