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The year transitions into “winter" only seasonally speaking in this case. When it comes to mergers and acquisitions (M&As), offshore queries we received promise continued strategic consolidation in the Indian healthcare and pharmaceutical sector.

Healthcare M&As broke records and more than doubled since the first half of last year to touch $4.32 billion and exceeded the total deal values of 2021.

Large and mid-sized Indian companies acquired smaller domestic and foreign companies. Mankind Pharma agreed to pay $249 million for Panacea Biotec’s formulation business in India and Nepal. Such deals help with direct access to established product domains in specific therapeutic segments.

Biocon Biologics‘ agreed to buy Viatris’ global biosimilar portfolio for $3.34 billion. It’s an instance of brand acquisitions to fill product gaps and strengthen weaker divisions.

Pharma M&A is how players maintain market share while enhancing performance. Acquiring disruptive tech helps them get ahead of the competition. For example, Dr Reddy’s Laboratories acquired select Wockhardt businesses to strengthen its presence in the domestic market.

Mankind Pharma also acquired select brands of Dr Reddy’s. In addition, Cipla recently bought Novartis Vysov and Vysov M brands for India.

Healthcare data is another robust market for M&A.

Fragmentation, legacy systems, quality of care, cost, and reimbursement require a remodel. Private equity is very well poised to address a lot of these pain points in the market.

A lot of the health tech companies that PE is backing are point-solution companies. They solve one out of several problems, such as increasing efficiencies, streamlining processes, and providing easier access to data and patient records.

Private equity is interested in rolling up various point-solution providers into a single solution for customers. This motivates consolidation, apart from the need for more analytics and insights across the market.

Digital healthcare platform Mfine is set to merge with the diagnostics business of LifeCell International Pvt. Ltd. The merged entity - LifeWell - has secured $80 million from healthcare-focused global investment firm OrbiMed.

Digital health platform MediBuddy acquired online doctor consultation startup Clinix in its first acquisition after a $125 million fresh funding round this year. The acquisition will help MediBuddy penetrate the domestic rural market, it said in a statement.

A buyer may potentially fail to accomplish its commercial objectives, especially in a heavily regulated sector such as healthcare. However, certain innovative deal structures are designed to pre-empt and address those risks.

M&A deals in pharma and biotech are fuelled by large pharma and biotech companies buying smaller ones to supplement their R&D efforts. Promising early-stage product candidates make it to such acquisitions. License-and-collaboration agreements, joint ventures and strategic alliances, option agreements and investment agreements are some of many risk-mitigating structures that are not outright purchases. They account for the risk of the target’s products (or frequently its sole product) never reaching the marketplace. The structures that are often utilized in such transactions include, among others, licensing agreements, contingent value rights and option agreements.

For a hospital running to acquire an ambulatory care centre that is a separate legal entity, the transaction may be structured as either a stock (or other equity) purchase or an asset purchase.

Similarly, the ownership of a pharmacy operating from the hospital premises may be transferred to a separate legal entity so as to facilitate foreign direct investment into the hospital company with an approval requirement and avoid the “multi-brand retail" issue.

In contrast, if the target company owns several hospitals not held in separate subsidiaries and the buyer is interested in purchasing one, a merger or stock purchase may not be feasible. In that case, the transaction may need to be structured as an asset purchase or a business transfer of an undertaking or, alternatively, as a two-step acquisition, wherein the seller “drops down" the target business to a controlled subsidiary and then transfers control of that subsidiary to the buyer.

Another structure emerging in healthcare M&A is the acquisition of hospitals undergoing corporate insolvency. Reduced liabilities, tax and stamp duty implications for successful applicants abound.

M&A transactions involving healthcare or producers of healthcare products and technologies raise a variety of complex regulatory, governance, financing, taxation and other issues that require careful structuring and documentation. Accordingly, parties to healthcare transactions should consider these factors to achieve their business objectives while minimizing their exposure to potential liabilities and simplifying the closing process.

Rachna Jain is senior partner Desai & Diwanji.

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