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Buyout fund CVC Capital Partners held talks with Italian drugmaker Recordati (RECI.MI) over a possible 8 billion euro ($9.4 billion) takeover, but has put the deal on hold due to concerns about the hefty price tag and political uncertainty, three sources familiar with the matter said.

Recordati, a family-owned maker of cardiovascular and rare diseases drugs, is Italy’s biggest listed pharmaceutical company with a market value of 6.4 billion euros ($7.6 billion).

The Recordati family, which controls about 51 percent of the company via their Fimei holding, has been sounding out potential bidders in the last two years following the death of the company’s former boss Giovanni in 2016, the sources said.

The family does not want to sell on the cheap. An 8 billion euro bid would imply a premium of 25 percent for the whole business, the sources said.

London-based CVC began talks with Recordati last year but one of the sources said it decided to put the deal on hold shortly before Italy’s national elections on March 4, which resulted in a strong showing for anti-establishment parties and a hung parliament.

“There was momentum in negotiations in late 2017 but they waited too long. Right now there is no appetite to make big bets in Italy,” the source said.

CVC would need to borrow cash to finance a takeover of Recordati and raise additional funds by distributing shares in the group to its own investors – a task made more challenging by Italy’s protracted political stalemate.

“Recordati would be a great investment for CVC but it’s hard for them to justify such a high price with the ongoing political uncertainty,” the source said.

Financial markets and investors had been relatively resilient during 10 weeks of inconclusive talks between Italian political parties seeking to form a government.

That changed this week as the anti-establishment 5-Star Movement and the far-right League neared a deal to form a coalition government and challenge European fiscal rules.

On Wednesday, Italy’s borrowing costs jumped and its stocks slid after a draft program for the potential government revealed plans to demand 250 billion euros of debt forgiveness.

A second source with knowledge of the negotiations said the clouded political outlook had played a role in CVC’s decision to sit on the fence for now, adding no other bidders were currently in talks with the Recordati family.

CVC could re-examine the deal once the political situation stabilizes, the first source said.

CVC declined to comment, while Recordati was not immediately available for comment.
Recordati, led by Chief Executive Andrea Recordati and Chairman Alberto Recordati, was founded in 1926 and has revenues of 1.2 billion euros and net income of 288 million euros. Almost 80 percent of its overall revenues are made outside Italy.

The Milan-based company employs more than 4,000 people and operates in Western Europe as well as Russia and various Central and Eastern European countries, the United States, Canada, North Africa and Latin America.

CVC, which raised a record 16 billion euros for its latest fund for private equity investments in Europe and North America, has spent several months trying to “make the numbers work”, one of the sources said.

It had initially looked at the possibility of merging Recordati with generic drug firm Alvogen, another healthcare business in its portfolio, in a bid to create scale and extract synergies, this source said.

Under the planned deal, CVC would have bought the Recordati family’s stake in the company and then launched a mandatory public offer on the remaining shares, as required by Italian takeover rules. If successful, CVC would have de-listed the company from the Milan stock market.

Recordati shares have strongly outperformed the European healthcare sector .SXDP in the last four years, almost trebling their value, boosted by delivery on strong organic growth and M&A.

Healthcare companies are typically trading at higher multiples as the sector is perceived as resilient and recession-proof. The industry has attracted a large slice of global M&A activity this year, with Japan’s Takeda recently clinching a 45.3 billion pound deal for London-listed Shire.

Private equity funds have also tried to gain more exposure to the sector with London-based buyout fund Advent recently entering exclusive talks to buy Sanofi’s (SASY.PA) Zentiva European generics arm for 1.9 billion euros.

Last year a consortium of Bain Capital and Advent won a 5.4 billion euro takeover quest for German generic drugmaker Stada that spanned for several months.