Era of big-ticket pharma buys fadingIn a sector that is seeing more inbound acquisitions of late, the latest being the Hospira-Orchid deal, the zeal to pursue large outbound acquisitions would be restricted for some time at least.

Era of big-ticket pharma buys fadingIndustry experts say buyouts by Indian drugmakers would happen, but not the multi-million dollar ones like the $570 million acquisition of German generic maker Betapharm by Dr Reddy's, or the $324 million buy of Romanian generic player Terapia by Ranbaxy, or even something like Wockhardt acquiring French firm Negma Labs for $265 million.

Large size $100 million outbound deals will not be frequent in the future in pharmaceuticals, says Navroz Mahudawala, associate director, life sciences practice, Ernst &Young.

Players like Ranbaxy, Dr Reddy's, Sun Pharma, Wockhardt were generally at the forefront of big-ticket acquisitions. Of the four, Ranbaxy is now a subsidiary of Daiichi, while Dr Reddy's is reeling under Betapharm problems, Wockhardt is stifled by debt, while Sun Pharma seems to have burnt its fingers with the $454 million Taro deal, says the associate director of a professional services firm. "The next rungs of acquirers like Lupin or Cadila Pharma or Piramal Healthcare have mostly been pursuing small-ticket buys."

Integration is easier when it comes to small buys, says Shiraz Bugwadia, director, of Capital Advisors, an investment banking and financial services firm.

Experts say pharma is a lot more challenging than other industries owing to regulatory complexities and timelines.

Alistair Stranack, partner, global healthcare practice head, at advisory firm Parthenon Group, says making smaller buys and using those to gain experience in new markets is a more prudent strategy for Indian firms expanding internationally. "The disadvantage of buying large players is that prices are higher."

Moreover, in case the acquired entity flops, a smaller one can be handled easily and the probable losses are also not large.

Kamal K Sharma, managing director of Lupin, says that, though one should not shy away from big ticket acquisitions, bigger is not necessarily better. "M&As should be used judiciously to manage shareholder returns and there has to be a sizeable revenue cost and profit synergy when acquiring."

However, others feel that size of a deal doesn't matter as much as the strategy and intent.
A spokesperson from Sun Pharma says there can be no generalisation drawn based on ticket size, as what works is usually a combination of the acquisition being a strategic fit, the deal value, and the buyers' ability to integrate.

The product portfolio of the company to be acquired and the returns it can possibly fetch the buyer are other key considerations, says Mahesh Chhabria, partner, 3i India Pvt Ltd, a private equity firm.

Mahudawala says Indian acquirers would mainly scout geographies like Syria, Turkey, Latin America and other emerging markets for buys. However, Bugwadia feels there would be a clear focus towards South East Asia and Mexico.

Experts believe these markets would be looked at as they are growing at a healthy rate of 14-15%, against the 1-2% seen in the US and 3-4% in the EU.

However, the Sun Pharma spokesperson says the Mumbai-based company would continue to focus on the US market for acquisitions.