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Growing M&A activity in the pharma space
Jul 24, 2015

Talking about valuations, Indian pharma companies certainly deserve a mention. For they were amongst the biggest gainers in 2014. And it seems there is reason for some of the stocks to continue commanding their premium. The Indian pharma majors have been on an acquisition spree over the past few years. Lupin's latest buyout of Gavis Pharma is one of the biggest buyouts by an Indian company in the international market. The global generics market in recent times has become one that is characterized by intense competition, growing stringent regulations and price erosion. Hence, the companies are scrambling to acquire scale to have that 'edge' over their peers in terms of bargaining power and pricing.

The large ticket acquisition provides the much needed scale to survive the tough conditions in the generics market. But one also needs to keep in mind the aftermath of these acquisitions. The companies that embark their ambitious expansion plans at the cost of high leverage could cause disarray in its financials. Other than this, are the integration issues that companies face. Ranbaxy's acquisition by Sun Pharma is the case in point here.

Further, these global acquisitions certainly bring in the country risks. The classic example here is of Dr Reddy's acquisition of Betapharm. Betapharm at the time of acquisition was the fourth largest generics company in Germany. The subsequent changes in the German generics market had an adverse impact on Betapharm. Dr Reddy is still struggling to grow in this market. At the end of the day, what matters is how the company is able to derive value from the acquisition. And augment the overall performance despite the slew of challenges in the medium term.

Data source: Business Standard

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