Carlyle to acquire 20% stake in Piramal’s pharma business for ₹3,700 crore

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CA Clover Intermediate II Investments, an affiliated entity of CAP V Mauritius Ltd, an investment fund managed and advised by affiliated entities of The Carlyle Group Inc., has agreed to acquire a 20% stake in Piramal Pharma Ltd, a wholly-owned subsidiary of Piramal Enterprises that contains all of the company’s pharmaceutical businesses.

The stake sale will be done through fresh equity issuance and the estimated equity capital investment for Carlyle’s 20% stake in Piramal Pharma would amount to $490 million ( 3,705.8 crore), Piramal Enterprises Ltd (PEL) said in a notice to the exchanges on Saturday following a board meeting on 26 June.

On 25 June, Mint had reported that The Carlyle Group has emerged as the frontrunner to buy a 20% stake in Piramal Group’s proposed pharma business subsidiary for close to 3,500 crore.

The proposed transaction values the pharma business at an enterprise value of $2.78 billion, with an upside component of up to $360 million depending on the company’s FY21 performance, said the company in the exchange filing.

Carlyle’s actual investment amount may vary according to net debt, exchange rate and performance against the pre-agreed conditions at the time of closing of the deal, it said.

The proceeds from the deal will be used as growth capital for the pharma businesses to expand existing capacities as well as to tap attractive acquisition opportunities within and outside India, said PEL.

“In the interim, the proceeds from this capital raise may also enable us to further strengthen our balance sheet through deleveraging in the near term,” said PEL in its exchange filing.

The revenue of the pharma business for the financial year ended March was 5,419 crore contributing 41% to company’s overall revenue. The business delivered a 41% growth in EBITDA at Rs.1,436 crore during FY20, at an EBITDA margin of 26%.

The transfer of the pharma business to the proposed subsidiary PPL is subject to shareholders approval, which will be sought at the annual general meeting of the company scheduled for 30 July.

Piramal Pharma will include Piramal Pharma Solutions, an end-to-end contract development and manufacturing (CDMO) business; Piramal Critical Care, a complex hospital generics business selling specialized products across over 100 countries; Consumer Products Division, a consumer healthcare business selling over-the-counter products in India; and PEL’s investment in the joint venture with Allergan India, which is engaged in the business of ophthalmology in the domestic market and Convergence Chemicals Pvt. Ltd.

The transaction is expected to close in calendar year 2020.

“This infusion of funds will further strengthen our balance sheet and provide us with a war chest for the next phase of our strategy. We are pleased to have an investor of this caliber join the Piramal family and continue our stellar track record of partnerships,” said Ajay Piramal, chairman, Piramal Enterprises.

The company had sold almost all of its domestic pharma business to Abbott in 2010 for $3.8 billion, following which it rebuilt the business over the last 10 years.

“This investment marks the beginning of an important partnership with the Piramal family, and further underscores our commitment to the Indian market. India is a hugely strategic part of Carlyle’s Asia business, and a market where we continue to see many attractive investment opportunities where we believe we can collaborate with management teams to drive long-term value for companies and stakeholders,” said Greg Zeluck, co-head, Carlyle Asia Partners advisory team.

Of late, Carlyle has been aggressively betting on pharmaceutical and healthcare.

On 8 May, The Carlyle Group agreed to acquire up to 74% stake in animal health focused pharmaceutical company SeQuent Scientific Ltd for about 1,580 crore.

Carlyle’s investments in the Indian healthcare sector include Medanta Medicity Hospital, a large hospital in the National Capital Region of Delhi, and Metropolis Healthcare, a chain of diagnostic centers and laboratories.

Carlyle has a total investment of $2.5 billion in India as of 31 March, 2020. The private equity giant’s other Indian investments include SBI Life, SBI Card, HDFC, India Infoline, Delhivery and PNB Housing Finance.

Carlyle’s investment in Piramal Pharma comes at a time when pharmaceutical stocks in India have been rising significantly due to improved business prospects in the wake of covid-19 crisis. Since 25 March, when a nationwide lockdown was announced, the PEL stock has shot up by a massive 93% to 1,316 apiece on the BSE, as of 1:57 pm n Thursday.

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