The Carlyle-Hari Babu consortium is in advanced stages of negotiations to buy out Hyderabad-based API ( active pharmaceutical ingredients) maker Ra Chem Pharma from majority stakeholder and parent Micro Labs.
Days after acquiring India’s largest pure-play animal healthcare company , Bengaluru based Sequent Scientific Ltd, The Carlyle Group is close to striking yet another pharma deal down south. This time the American private equity giant is teaming up with pharma veteran and ex-Mylan Labs senior executive B Hari Babu, said people familiar with the matter.
Hari Babu is the former MD and CEO of US pharma giant Mylan’s Indian operations and was elevated to the role of global COO in 2016.
The Carlyle-Hari Babu consortium is in advanced stages of negotiations to buy out Hyderabad-based API ( active pharmaceutical ingredients) maker Ra Chem Pharma from majority stakeholder and parent Micro Labs, the persons told Moneycontrol.
“ This proposed transaction has entered the last leg and a 100 percent sale is on the cards,” said a source. An official announcement can be expected within the next four-six weeks,” he added .
“Carlyle is betting beg on the domestic pharma segment and is working with Hari Babu and team to build a sizeable pharma platform in India. They will help with the funding for this deal and Babu will handle the operational aspects,” added a second source. Ra Chem Pharma has performed well since Micro Labs picked up a majority stake and this transaction could be valued at an attractive multiple, he said.
“ Valuations in the API segment are currently higher than speciality pharma across the globe, including US and Europe. So promoters of mid-sized players are looking to either cash out and exit or get in a strategic investor,” explained a third source. PE funds are interested in this segment as the margins are stable, counter-party risks are low and there is scope for further growth, he added.
“Investment bank Normura is the exclusive financial advisor to the deal,” shared a fourth source confirming the talks are on between both parties.
All the four individuals spoke to Moneycontrol on the condition of anonymity.
In response to an email query from Moneycontrol, Carlyle declined to comment. Moneycontrol is awaiting responses from Micro Labs and Ra Chem Pharma and will update this article as soon as it hears from them. B Hari Babu was unavailable for comment and did not respond to multiple texts and phone calls. Nomura was unavailable for an immediate comment.
In 2017, Micro Labs picked up a 73 percent stake in the firm for Rs 332 crore, implying a valuation of around Rs 455 crore for the entire company. According to a CRISIL report, Micro Labs increased its stake to 83.5 percent in fiscal 2019.
RA Chem Pharma is a vertically integrated pharmaceutical company with US FDA approved units in Jaggayyapeta (Andhra Pradesh), Nacharam, and Balanagar (both in Telangana). It manufactures APIs and formulations and undertakes clinical research.
Incorporated in 1973, Micro Labs is managed by Dilip Surana and Anand Surana. The firm manufactures and distributes pharmaceutical formulations in India and abroad and is present in more than 60 countries.
A CRISIL report dated January 8, 2020 highlighted the firm’s strong position in the domestic formulations segment, diversified revenue streams and strong liquidity position. “The company is among the top five players in the liver-therapy and oral anti-diabetic segments, and ranks 11th in the cardio vascular products division,” the report said. It also pointed out an increase in exposure to unrelated businesses, including real estate and the large requirement for working capital over the medium term.
On May 8, 2020, Carlyle announced that it would acquire up to 74 percent stake in SeQuent Scientific for ₹1,587 crore. Its investments in the Indian healthcare sector include Medanta Medicity Hospital, a leading hospital in the National Capital Region of Delhi, and Metropolis Healthcare, which operates a chain of diagnostic centers and laboratories. Carlyle has invested more than $2.5 billion in India as of March 31, 2020. Its other notable investments include SBI Life, SBI Card, HDFC, India Infoline, Delhivery and PNB Housing Finance.