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Business News/ Companies / News/  Pharma promoters look to cash in on PE buyout frenzy
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Pharma promoters look to cash in on PE buyout frenzy

At least three promoters are seeking to sell majority stakes to PE funds, according to three people aware of the developments
  • KKR’s $414 mn acquisition of JB Chemicals and Pharmaceuticals Ltd is the biggest buyout deal this year, followed by Carlyle’s $210 mn acquisition of SeQuent Scientific Ltd
  • The spate of buyout deals in the sector is being driven by the convergence of several macro trends (Mint)Premium
    The spate of buyout deals in the sector is being driven by the convergence of several macro trends (Mint)

    Several mid-sized drug makers are discussing potential buyouts with private equity (PE) firms after the government offered incentives to encourage companies to produce drug ingredients in India to cut reliance on China.

    At least three promoters are seeking to sell majority stakes to PE funds, according to three people aware of the developments.

    The promoters of Suven Pharmaceuticals Ltd, for instance, have hired investment bank Barclays to find a buyer for their 60% stake; Granules India Ltd’s promoters are working with Kotak Mahindra Capital to find suitors; and ZCL Chemicals Ltd has appointed Jefferies for a stake sale, the people said, seeking anonymity.

    Deals landscape
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    Deals landscape

    That drug makers are a subject of interest is clear from the fact that PE firms have acquired controlling stakes worth $848 million across five deals this year, according to private deal tracker Venture Intelligence. That compares with $250 million and $192 million worth of control deals struck by PE funds in 2019 and 2018, respectively.

    KKR’s $414 million acquisition of JB Chemicals and Pharmaceuticals Ltd is the biggest buyout deal this year, followed by Carlyle’s $210 million acquisition of SeQuent Scientific Ltd.

    The spate of buyout deals in the sector is being driven by the convergence of several macro trends, said Hari Buggana, chairman of pharma and healthcare-focused PE fund InvAscent.

    “With covid and the resultant disruption in supply chains, there is a rethink among formulators, both foreign and domestic, on the risks in the supply chain. There is definitely a move to derisk their China-dependent supply chains and move at least some of it to India," he said.

    India’s pharma companies, the world’s largest exporters of generic drugs, faced shortages of key drug ingredients when the coronavirus outbreak disrupted supply chains in Asia’s largest economy. The heavy reliance on China for supplies prompted the Indian government to offer incentives to local manufacturers to build capacity to manufacture drug ingredients in the country.

    “So, you now have more demand from PE funds and that demand is manifesting itself in more reach-out from these funds to the promoters," he said.

    “There will always be a few promoters who are willing to sell but were waiting for the right valuations. They may be ready to sell because of succession issues or general fatigue," said Buggana.

    The defensive nature of the pharma industry, which lends to greater earnings visibility, is also attractive for investors, said industry experts.

    “There is visibility as well as sustainability of earnings in pharma that provide confidence to private equity investors. It is also a sector where companies are comparatively under leveraged, so the ability to use financial leverage to juice up your returns makes it attractive," said Utpal Oza, managing director and head, investment banking, at Nomura India.

    Spokespeople for Granules India and ZCL Chemicals declined to comment. An email sent to Suven Pharmaceutical did not elicit a response.

    “If and when an event that requires a disclosure as per provisions of Regulation 30 of the Sebi Regulations, 2015, occurs, we shall make necessary disclosures in accordance with the Sebi listing regulations," said Krishna Raghunathan, vice-president of finance/investor relations, at Granules India.

    Oza added that the general trend in M&A in India points towards more buyouts and that more promoters will seek to exit their companies in the coming times. “In India, and not just in the pharma sector, you will see that there will be a transition from individual family owned/promoter driven companies to institutional ownership."

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    ABOUT THE AUTHOR
    Swaraj Singh Dhanjal
    " Based in Mumbai, Swaraj Singh Dhanjal is responsible for Mint’s corporate news coverage. For the past eight years he has been writing on the biggest deals in private equity, venture capital, IPO market and corporate mergers and acquisitions. An engineer and an MBA, he started his journalism career in 2014 with Mint. "
    Catch all the Corporate news and Updates on Live Mint. Download The Mint News App to get Daily Market Updates & Live Business News.
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    Published: 23 Oct 2020, 06:20 AM IST
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