Indian pharmaceutical companies are increasingly going to look at small, strategic acquisitions targeted towards bettering their portfolios in research and marketing, according to studies done by PriceWaterhouseCoopers.
The recent trend in takeovers tells a story. Out of the 21 buyouts announced by Indian companies in the last one year, only three deals have values of above $100 million, according to data available on Bloomberg.
Wockhardt acquired the French drug maker Negma Laboratories for $265 million (Rs 1,071 crore), Sun Pharmaceuticals bought out Taro Pharmaceuticals for $226 million (Rs 913 crore) and Jubilant Organosys got the assets of Hollister-Stier Labs for $ 122.5 million (Rs 495.21 crore).
All other deals in the space have been between $ 25 and 100 million (Rs 101 crore and Rs 404 crore).
This means the years of big ticket acquisitions by Indian pharmaceutical companies are essentially over, at least for now.
“The average deal size for Indian pharmaceutical companies are going to be between $25 to 100 million,” said Sujay Shetty, associate director, PriceWaterhouseCoopers, who heads PWC’s pharmaceuticals practice.
The reason for this, he said, is increasing awareness of investors in India and abroad about the capability of a company to absorb the costs of acquiring a company abroad.
The sale of Merck’s generic business to Mylan Laboratories for $ 6.6 billion (Rs 26,660 crore) has created a shift in the thought process of companies. “Companies are asking themselves, will this acquisition do justice to our business model vis-a-vis the effect on our balance sheet,” said Shetty.
In other words, companies are now wary of buying assets that might be difficult to integrate, he added.
This in turn is making them highly selective about the kind of targets they select. Wockhardt’s acquisition of Negma is a case in point. Negma has a strong pipeline of products under research, which would become a valuable asset for Wockhardt.
The same is true for Sun Pharma’s takeover of Taro Pharma. A closer look at the other acquisitions too shows that most acquisitions are highly strategic in nature, notably, Cadila’s acquisition of Quimica E Farmaceutica and Bexel Pharmaceuticals buyout by Orchid Chemicals & Pharmaceuticals.