New York/Mumbai: British consumer goods firm Reckitt Benckiser agreed to buy privately-held Indian company Paras Pharmaceuticals for about $726 million, to boost its operations in a fast-growing healthcare market.
Big global healthcare firms are fast driving into emerging markets as sales stall in developed countries and as they look to tap into the healthcare needs of billions of new consumers in places such as China, India, Brazil and Russia.
Also Read | Emami loses Paras bid, shares jump 20%
Paras, which clocked sales of more than Rs 400 crore ($89 million) in the financial year ended March, makes several over-the-counter medications, including Moov pain relief ointment, Krack heel care lotion, and D’Cold cold remedy.
“The research base of companies and the market potential in India are the main attractions for foreign players in the Indian healthcare sector,” said R.K. Gupta, managing director at Taurus Asset Management Company in New Delhi.
“We will see these kind of deals in the future as well as global drug makers step up their efforts to capture a bigger share of the emerging markets.”
Private equity firm Actis will sell its 63% stake in Paras to Reckitt Benckiser. Other shareholders including Sequoia Capital and Paras founder Girish Patel and his family will also sell their stakes to the British company.
“It creates a material healthcare business in India, one of the most promising healthcare markets in the world with the addition of number of strong and leading brands,” Reckitt chief executive Bart Becht said in a statement.
In its third quarter earnings, Reckitt saw rapid growth in emerging markets and from its pharmaceuticals business which helped to counter the impact of sluggish European and North American sales and tough competition from its key rivals in Europe.
Pharmaceutical market information provider IMS forecasts 17 key emerging markets will account for about 50% of global growth in pharmaceutical sales worldwide over the next five years, making them an irresistible target for firms operating in developed markets.
In one of the largest such deals, Abbott Laboratories Inc paid a hefty $3.7 billion in May for the branded generic drugs operations of India’s Piramal Healthcare , after beating competition from many rivals.
In October, India’s Business Standard newspaper reported that GlaxoSmithKline Plc , Sanofi-Aventis , Novartis AG and US-based Johnson & Johnson had submitted concrete bids to acquire majority stake in Paras.
It reported that Japan’s Taisho Pharmaceutical had also been expected to join the race.
Shares of Indian personal care products maker Emami Ltd , which was in the fray to acquire Paras, jumped 20% to hit its upper circuit, as analysts had previously worried that Emami would overpay for the deal.
Reckitt, whose product portfolio includes Dettol soaps, Strepsil throat lozenges, and Mortein pest control aerosol sprays, was advised by JPMorgan on the deal. Morgan Stanley advised Actis and other Paras shareholders.
Surging PE Activity
The number of deals by private equity firms is rapidly rising in India, with firms such as 3i Group Plc and Blackstone Group scouting for new investment opportunities, and many others selling their holdings as valuations improve.
The total value of private equity related M&A in India has risen to $5 billion so far this year, up from $2.7 billion a year ago, according to Thomson Reuters data.
Private equity firms typically make minority investments in India, where entrepreneurs are often reluctant to sell out and where full buyouts are rare.
Private equity firms Carlyle and Advent plan to jointly bid for a controlling stake in India’s Patni Computer for nearly $1 billion, sources with direct knowledge of the situation told Reuters last month.