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PE Players Courting Strides Arm

23 November, 2009

Is there a deal brewing at mid-sized pharma company Strides Arcolab? Lazard was seen running a capital raising mandate for the Bangalore-headquartered firm. Strides promoter and Chief Executive Arun Kumar – who has sporadically dangled equity divestment plans – was looking at raising around $100 million through a stake sale in the combined speciality pharma and R&D business.

The buzz is that private equity giant General Atlantic Partners is leading the race in cutting a deal with Mr Kumar. Speculations suggest that General Atlantic could pick up about 40% stake for $100-million infusion valuing Strides Specialities Ltd, a wholly owned arm where speciality pharma and R&D operations are parked, at around $250 million.

But, the runaway stock price – the counter moved up from Rs 60 in March this year to almost Rs 200 now – is posing valuation challenges. “The rising stock price is creating bid-ask spread. And I think the spread could kill the deal,” argued a banking source, tracking the development. And it seems Strides is once again talking to other investors who showed early interest in the transaction.

The speculated list of other investors include Advent International, Carlyle Group and 3i among others. And, Arun Kumar reacted to a query on deal-making with General Atlantic this way: “Your information is wrong. We have no further comments to make.”

Strides Specialities has expertise in soft gelatin capsules and sterile injectables, with global manufacturing presence from Poland to Brazil. A decision to hive off the business into a separate entity was taken earlier this year. The parent, Strides Arcolab, retains the pharmaceuticals business.

Specialty pharma, a relatively high margin operation, accounts for roughly 35% of Strides Arcolab’s consolidated revenue, which stood at Rs 1,126 crore in 2008.

The restructuring of specialty pharma and R&D is probably a prelude to raising funds to pay down Rs 1300 crore of debt on the company’s books. The debt burden – mostly in the form of FCCBs – should be seen in the context of the entity’s net worth pegged at Rs 415 crore, as reported by Mint in September this year.

Mr Kumar was looking at a financial investor who could also bring strategic value to the company’s specialities business in the Americas. There was always scepticism on this deal-making, as some bankers believe that clinching a transaction at Strides is never going to be an easy task. The firm has spawned more than 40 subsidiaries – with complex business and accounting structures – as it expanded globally through small acquisitions and joint ventures.

And, this is not the first time Strides is entering into talks with financial investors. Two years back, Carlyle Group worked on structuring a large minority investment into the injectables business, but failed to clinch it. Strides was earlier involved with a formal merger transaction with mid-sized peer Matrix Laboratories supported by Schroders. That deal, too, fell through after making substantial progress.

So, it is early days till the cheque is banked.


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PE Players Courting Strides Arm

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