Deal of the month: Torrent Pharma acquiring Elder’s domestic formulation business

Deal: Ahmedabad-based drug major Torrent Pharmaceuticals Ltd acquiring domestic formulation business of Mumbai-based pharmaceutical manufacturing and marketing company Elder. 

Deal details: Torrent Pharmaceuticals Ltd which clocked revenue of Rs 3,254 crore has got into a definitive binding agreement to acquire Elder Pharmaceuticals’ branded domestic formulation business in India and Nepal for Rs 2,004 crore. This deal includes over 30 brands of Elder including its most famous brand Shelcal going to Torrent. 

Seller: Post this transaction Elder Pharmaceuticals plans to focus on its domestic business of anti-infectives, strengthen in-licence portfolio and grow its business in UK and Europe. It will also look at exploring opportunities in new therapeutic areas.

Valuation: The revenue of Elder’s branded formulations business, which is being transferred to Torrent, is Rs 414 crore, making the valuation just under five times, according to Siddhant Khandekar, chief manager, Research, ICICI Securities. 

Big picture: The deal comes at a time when Indian pharmaceutical industry is going through a big phase of consolidation. Many foreign companies have been scouting to acquire Indian companies to increase their reach in the country, while big Indian pharma companies have been looking at acquisitions both in India and overseas.  

Some of the large cross-border acquisitions include Cipla acquiring South Africa-based Cipla Medpro for $512 million and Mylan acquiring Agila Specialties for $1.75 billion. Elder acquiring Torrent is the largest domestic M&A deal in the pharma sector.

Behind the scene: The deal comes almost a year after several media reports said that Elder is on the block. The company has been battling with heavy debt of Rs 1,300 crore it acquired to fund acquisition and expansion and has been looking at options to service it. 

While looking to sell, Elder started an active bidding process with strong players like Sanofi, GSK Pharma and Pfizer in the race. 

“Elder was considering reducing its debt and that’s why probably its board took a decision to look at strategic options. Its plans to sell started with a bidding process and there were a few bids. Torrent emerged as an attractive option, probably since being an Indian company, it understood the business and with this being a domestic transaction, there were not many regulatory issues which again made it attractive. Hence, the two parties may be able to close the deal relatively faster,” said Bhavik Narsana, partner at Khaitan & Co.

Advisors: Elder was advised by Nomura with E&Y being the transaction and tax advisor while Khaitan & Co. was the legal advisor.

(Edited by Joby Puthuparampil Johnson)

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