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Pharmaceutical and healthcare sector to dominate M&As in 2012: Grant Thornton

The Economic Times:  February 21, 2012

Mumbai: India will see the largest number of merger and acquisitions in the pharmaceutical and healthcare sector this year despite stricter regulations, according to consulting firm Grant Thornton.

A survey conducted across 100 companies has revealed that a fourth of the respondents were bullish on acquisitions in the pharma sector.

Last year, the Department of Industrial Policy and Promotion (DIPP) decided to clamp down on the acquisition of domestic pharma companies by multinationals on the ground that such deals would lead to a monopoly by foreign companies. DIPP had proposed a reduction in pharma foreign direct investment from 100% to 49%. However, the commerce ministry decided to route all FDI in the sector through the Competition Commission of India.

Grant Thornton said though the number of deals was high last year, it was lower than the 2010 level due to consolidation and integration of past deals.

"The expectations of M&A activity in the pharma and healthcare sector could be explained by factors such as the impending patent cliff in the US, the increasing attractiveness of India as a low-cost R&D destination and the increasing success of Indian firms in getting ANDA approvals," said Sunil Makharia executive VP (finance) Lupin Pharmaceuticals. Patent cliff refers to expiry of legal protection to top-selling drugs.

Bangalore-based Strides Arcolab's sale of its Australian business to Watson Pharma for 1,900 crore was the first M&A deal this year. Japanese drug major Daiichi Sankyo is also looking to buy domestic mid-sized companies in India to expand its reach in the domestic market.

"The pharma space is overcrowded and consolidation needs to take place," said Srividya CG, partner, valuation services, Grant Thornton India. After the 17,000-crore acquisition of Piramal Healthcare by Abbott Pharma, the sector did not witness any large deals. The survey said 87% of the respondents felt that the merger control provisions of the Indian Competition Act had no impact on their current and future M&A activity.

The report said business sentiment among corporates houses has improved significantly compared to last year and private equity companies were also expected to participate in the M&As.

A dry initial public offer (IPO) market and stringent borrowing norms will force companies to turn to private equity companies for funding.

Sixty per cent of the companies said that they will be raising funds through private equity while only 7% said they will take the IPO route.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.