Domestic drugmakers are quickly getting transformed from being hunters to getting hunted.
The spate of acquisitions of Indian businesses by multinational companies in the last 2-3 years outshines the large-scale buys made by domestic companies overseas.
Between 2006 and 2007, domestic players aggressively chased and purchased international firms such as German generics maker Betapharm (by Dr Reddy’s for $570 million), Romanian generic company Terapia (by Ranbaxy for $324 million) and French firm Negma Labs (by Wockhardt for $265 million).
Experts say this trend will cease for at least some time in the near future.
“There is paradigm shift happening, with overseas buys by Indian companies becoming more frugal, compared to the past. Acquisitions would be restricted to mostly $100-150 million in size,” said an associate director of a professional services firm.
Big buys were mainly pursued by the quartet comprising Dr Reddy’s, Ranbaxy, Wockhardt, and Sun Pharma. “Of the four, Dr Reddy’s is saddled with Betapharm woes, while Ranbaxy is no longer an Indian company. Wockhardt’s hands are full with its own debt issues, while Sun is yet to iron the creases on its $454 million Taro deal,” said the associate director.
Players like Lupin, Cadila or even Piramal Healthcare will mostly pursue smaller buys, say experts.
Indian players would, henceforth, mostly acquire either marketing platforms or manufacturing bases, rather than controlling stakes, say industry professionals.
Alistair Stranack, partner, global healthcare practice head, at strategic advisory firm Parthenon Group, said that making smaller buys and using those positions to gain experience in new markets is a more prudent strategy for Indian firms expanding internationally.
Though everything depends on the quality of the asset being bought, larger deals are looking riskier, especially in EU, because the regulatory frameworks on unbranded generics are still evolving, said V Krishnakumar, executive director at investment banking firm Avendus Capital.
“The macro economic situation of the recent past led to a focus on conserving cash. Hence, most buyers vanished from the deal making scene. Those doing deals were focused on niche segments. The effort needed to digest a large deal got amplified.”
Moreover, in case the acquired entity flops, a smaller one can be handled easily and probable losses are not large, said the associate director.
Kamal K Sharma, managing director of Lupin, said though firms should not shy away from big-ticket acquisitions, bigger is not always better.“M&As should be used judiciously to manage shareholder returns and there has to be a sizeable revenue cost and profit sharing synergy when acquiring.”
If acquisitions were to happen, markets in Central Eastern Europe and Latin America would be prime geographies, say experts. “We would look at Latin America for buys in the coming future, as we don’t have a major presence there, and organic growth in that market is not a very good proposition,” said Lupin’s Sharma.
Krishnakumar said markets in North America and Western Europe also continue to be of interest for unbranded generic buys, especially for contract research companies.
The US also continues to be of interest for some players, despite the sluggish growth of 1-2% in 2009, compared to 14-15% growth in developing markets.
According to Kal Sundaram, CEO, Sun Pharma, the company is always on the lookout for attractive opportunities to invest and the US appears eye-catching for buys.
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