Piramal Healthcare today said it has decided to enter into the healthcare information management space by acquiring the US-based firm, Decision Resources Group(DRG) for a consideration of nearly USD 635 million (Rs 3,400 crore), reports CNBC TV18's Archana Shukla.
Piramal Healthcare will acquire 100% stake in DRG and it would be funded by an equal mix of debt and equity. The transaction is expected to be closed by June 30, 2012, Ajay Piramal, Chairman of Piramal Healthcare said.
Decision Resources Group provides high quality databases and consulting services to the global healthcare industry estimated at USD 840 billion. DRG, which provides web-enabled information using proprietary database to global healthcare companies for their R&D projects, is growing 20% a year and counts 48 of the top 50 global pharmaceutical companies as clients. It is also likely to bring in revenues of USD160 million in 2012. Following the completion of acquisition, Piramal will operate DRG as a stand-alone business.
Piramal said that the company was looking forward to getting into a business which was knowledge based and had a higher cash flow to have a balanced portfolio. DGR falls in that category and therefore, suits Piramal's requirements, informed the Chairman.
"After we sold our domestic business in September 2010, we said that we are really looking at getting into businesses which have high intellectual properties around it, which are knowledge based. That is why our continued focus is on the drug discovery in development business. In some ways you look at this as a continuation of that. The Decision Resources Group (DRG) as a company is in proprietary data. It is a knowledge based business with a lot of intellectual property around it," explains Piramal.
Piramal further adds, "We also wanted to get business which would be a higher cash flow business to manage the outflows that we are doing in drug discovery, just to have a balanced portfolio and this falls in that category. It is a high margin business. It has a good sales growth; it has 20% CAGR over the last five years. The turnover today is USD 160 million dollars. They have high quality customers and customer retention rates. It serves 48 out of the top 50 companies in the pharma healthcare space and retention rates are 95%. Therefore, it’s a business which has predictable cash flows."
"Finally, the DRG has grown through Mergers and Acquisitions (M&As) along with organic growth which is also the DNA of our company. I feel that there are several opportunities in this business to grow it further," clarified Piramal.
When asked about the source of funds for the acquisition, Piramal said, "From Abbott we will be getting about USD 1.2 billion with USD 400 million each, for the next three years. That is one large inflow that we have. In addition to that, today on our balance sheet, we have a net worth of about Rs 12,000 crore. In addition, Vodafone investment is a short to medium-term one between 2-3 years. That should also release another Rs 6000 crore odd in the near future. Therefore, we have enough of equity. We will raise the debt from the US against this target and the balance will be funded by equity out of India."
Also watch the accompanying video.