Expect to see Valeant Pharmaceuticals International Inc. (NYSE: VRS, TSX: VRX) continue to expand in the skincare sector via M&A.

The company's latest move, the $360 million acquisition of Obagi Medical Products Inc. (Nasdaq: OMPI) - announced on March 20 - won't be its last, according to Laurie Little, vice president of investor relations.

Since CEO J. Michael Pearson joined Valeant in 2008, he has focused on acquisitions, especially in the dermatology sector, Little explains.

"There’s a number of reasons we find dermatology attractive," she adds. The sector tends to be a "high cash-paying market," and skincare companies usually require smaller sales forces. Large pharmaceutical companies, such as Johnson & Johnson (NYSE: JNJ), also tend to overlook targets in dermatology, preferring bigger medication deals. This makes it easier for Valeant to compete with other strategic buyers, Little says, especially when most targets fall within the middle market.

With the exception of Medicis Pharmaceutical of Scottsdale, Ariz., which Valeant picked up for $2.6 billion in September, many targets are priced in the ballpark of $100 million or less. For example, Valeant purchased the rights to dermatology company Targretin, known for its medication for skin problems caused by lymphoma, in February for $65 million.

Obagi, which develops aesthetic and therapeutic skin-health products, was formed in 1988 and, at the time, did business as WorldWide Product Distribution Inc. The company went public in 2006. The sale to Valeant is expected to close in the second quarter. The purchase price works out to $19.75 per share. Obagi's stock closed at $15.34 on March 19, before the deal was announced. The company had $120 million in revenue for 2012.

Obagi's products include Obagi Nu-Derm, Condition & Enhance, Obagi-C Rx, Elastiderm and Clenziderm. Among the notable ointments in Valeant's portfolio are Acanya and Atralin, used to treat acne, as well as Zovirax and Xerese, for herpes. With the Medicis deal in 2012, the company now owns anti-aging drugs Dysport and Restylane.

In addition to skincare, Valeant also maintains a presence when it comes to buying medicines in other product lines, such as cough and cold remedies, exemplified by the $163 million for Russian brand Natur Produkt in February. Last year, in addition to Medicis, it paid $64 million for assets of University Medical Pharmaceuticals Corp. in May and followed up with the acquisition of OraPharma Inc. from private equity firm Water Street Healthcare Partners LLC for $312 million in June.

While Valeant tends to tap into the cash it has on hand to do deals, it has been known to utilize the debt market as well. At the end of 2012, the company amassed roughly $10.8 billion in debt. (For more on Valeant's term loan agreements, see "JPMorgan Talks Price on Valeant TL.")

Morgan Stanley is Obagi’s financial adviser; while Jenner & Block LLP provides legal advice. Skadden Arps Slate Meagher & Flom LLP was Valeant’s legal counsel for the Obagi deal.

For more on the skincare industry, see “Skin Deep: Cosmetics Go Medical.”

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