Small outbound acquisitions could be back on the radar for domestic drug companies looking out of India, but it is not yet time for the big-ticket deals, say industry consultants.
Local drugs-makers could look at acquisition targets in the $50-100 million range, and in markets like Europe, or the BRIC countries that have shown consistent growth, says Ernst & Young's Associate Director (Health Sciences), Mr Navroz Mahudawala.
Besides, there is a lot you can do with an acquisition in such markets, he adds.
Making a similar observation is PricewaterhouseCoopers' Associate Director, Mr Sujay Shetty. “I think outbound sizes will be smaller, more like $10 million to $50 million. Only rare exceptions beyond that,” he says.
Reality check
Between 2004 and 2007, drug-makers had worn acquisitions like labels on their sleeve, even as they seemed to race each other to make that outbound big acquisition. But a difficult year seems to have given them a reality check and acquisitions became more difficult due to mounting debt.
A deal of the scale of Dr Reddy's $572-million Betapharma acquisition in Germany or Sun Pharma's $454-million deal for Israeli drug-maker Taro (still pending completion) seem to be remote, at least for a couple of years, observers say.
But since Indian companies have global aspirations, outbound acquisitions will continue, says Mr Akil Hirani, Managing Partner of international law firm Majmudar & Co. And though debt will get more expensive, it will be available more freely than in 2009, and this will help leveraged transactions, he adds.
Private equity funds are also getting active and will be deploying more capital than in 2009, he says, indicating that the year will see more all-round mergers and acquisition activity than 2009.
Inbound
In-bound acquisitions happened largely in the second half of 2009, and they will continue to happen this year, observe industry-watchers.
Sanofi Aventis acquired Merieux Alliance's 80 per cent in Shantha Biotech for $770 million in July; Pfizer Inc acquired Vetnex (erstwhile Ranbaxy's animal healthcare business that was divested to ICICI Venture) in June; and Orchid sold its injectibles business to US-based Hospira in December.
In fact, Orchid-Hospira did surprise deal-makers who believed that the year had closed on deal making. “There is clear intent from the buyers,” agrees one industry-watcher, “..and as they see valuations staying high, some will start to blink,” he adds.
As fears of slipping opportunities dawn on both buyers and sellers, “these mating dances will result in some real action too,” he observes. With no clear benchmark for someone buying or selling an Indian pharma business – a few deals need to happen for expectations to clear up and talks to move ahead.
Inbound big-ticket deals will happen gradually as promoters reconcile to changing realities, that is, more competition and price erosions everywhere, agrees Mr Shetty. Valuations, though, will still play the party-pooper for local consolidation, they concur.
Source : Business Line