Overseas mergers and acquisitions (M&As) led deal activity in the pharmaceuticals and healthcare sector in 2015, their value hitting a five-year high.

Outbound deals in the sector were worth $1.5 billion in 2015 as against $251 million in 2014, according to data from VCCEdge.

“There has been a sharp increase in the value of outbound deals in CY15 (calendar year 2015); we see it as being linked to the accelerated pace of consolidation underway in the US generics market. There has been a marked increase in ticket value as well as risk appetite from Indian acquirers,” said KrishnaKumar V., partner, life science M&A advisory, EY Llp.

July 2015 saw the largest overseas buyout by an Indian drug maker when Lupin Ltd acquired US generic-drug maker Gavis Pharmaceuticals Llc for $880 million. In September, Cipla Ltd acquired US-based InvaGen Pharmaceuticals Inc. and Exelan Pharmaceuticals Inc. for $550 million, saying it aimed to double its revenue from the US market to 15-20% of its total revenue by 2020.

Bengaluru-based Strides Arcolab Ltd expanded its global presence by acquiring Aspen’s Australia business for $287 million in May 2015.

Generic pharmaceuticals make up 80% of prescriptions dispensed in the US but account for just 27% of total drug spending. The US generics market is estimated at $35 billion annually, more than double the size of the Indian pharmaceutical market ($14 billion, or about Rs.92,000 crore).

Inbound deals also more than doubled to $999 million in 2015 from $430 million in 2014.

In February, US drug maker Mylan Inc. agreed to pay as much as $800 million to acquire some women’s healthcare businesses from Mumbai-based Famy Care Ltd as it looked to expand its range of products targeted at female customers.

In October, Recipharm AB said it will acquire a majority stake in Nitin Lifesciences Ltd, an Indian sterile injectibles contract manufacturer, for about $100 million.

However, overall M&A deals saw a fall of 30% in 2015, following a sharp decline in domestic consolidation.

Compared to last year, when the industry saw domestic deals worth $4.6 billion, including the merger of Sun Pharmaceutical Industries Ltd and Ranbaxy Ltd ($3.2 billion) and the Strides Arcolabs-Shasun merger ($200 million), this year has seen domestic deals worth only $300 million.

The combined value of domestic and outbound M&A deals was $3.7 billion in 2015, as against $5.3 billion in 2014.

“Two large domestic deals, viz., the Sun-Ranbaxy merger and the Strides-Shasun merger primarily drove last year’s deal table, whereas in the current year, outbound deals have prominently featured,” said Utpal Oza, managing director and head of investment banking at Nomura Financial Advisory and Securities (India).

Besides the pharmaceuticals sector, there was considerable investment and exit activity in the hospital sector this year.

Malaysia’s IHH Healthcare Bhd, the second largest hospital chain in the world by market value, acquired a majority stake in Hyderabad-based Ravindranath GE Medical Associates Pvt. Ltd for $200 million in August. In March, IHH Healthcare had bought a 51% stake in another Hyderabad-based chain, Continental Hospitals Ltd, for $45.4 million. Singapore’s state-owned investment firm Temasek Holdings Pte Ltd acquired about 18% stake in Naresh Trehan-owned multi-specialty hospital Medanta for an undisclosed amount in January.

“On the strategic front, we are witnessing sustained activity in domestic consolidation being led by the larger domestic hospital chains, along with selective inbound interest from hospital chains based in South-east Asia and the Middle East/Africa regions,” said KrishnaKumar.

According to experts, the initial public offerings (IPOs) of pharmaceutical firms and healthcare service providers such as Alkem Laboratories Ltd this month and Syngene International Ltd in July may bring more private equity funding into these segments in 2016.

“The successful healthcare IPOs will encourage private equity investments into the sector, providing them with a decent return with exit either through IPOs or strategic sale,” said Oza. According to him, 2016 will see continue to see large outbound deals but inbound deals may be slow due to high valuations in the Indian market.

Also Read:

JPMorgan tops investment bank league table on the back of M&As deals

Indian private equity, M&A deals surged 55% to $4.2b in October: Grant Thornton

This article was first published on Livemint.com

India 2015: Pharma, healthcare deals take overseas M&As to 5-year high

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