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Exclusive | KKR leads race to buy stake in Piramal's pharma business

The stake-sale process is aimed at raising growth capital and strengthening the Piramal group’s balance sheet.

April 29, 2020 / 02:42 PM IST
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Global private equity giant KKR & Co has emerged as the frontrunner to acquire a significant minority stake in the pharma business of billionaire Ajay Piramal-led Piramal Enterprises, sources have told Moneycontrol. 

Moneycontrol was the first, on January 28, 2020, to report the diversified conglomerate’s fund-raising plans and said investment bank Rothschild was named the sell-side adviser for the deal.

The process began a few months back and KKR is ahead in the race for the 20% stake which had been put on the block for $500 million, valuing the combined pharma verticals at $2.5 billion. The final deal valuation may change based on negotiations & KKR’s appetite,” said a source. 

In response to email queries from Moneycontrol, KKR India and a Rothschild spokesperson declined to comment. A Piramal Enterprises spokesperson said, “ We do not comment on market speculation.”

KKR preferred majority buyouts and if the proposed transaction were to come through, it would be a departure from the New York-headquartered company’s usual model of striking control deals, a second source said.

“KKR understands the pharma and healthcare space really well and the top management of both parties--KKR India CEO Sanjay Nayar and Ajay Piramal, Chairman, Piramal Enterprises--share a good relationship,” the second source added. 

Rival private equity firm TPG Capital was in the race but dropped out, as it was keen on a majority deal rather than a minority trade, a third source said.

“KKR has been actively looking to invest in a domestic pharma platform. They see high potential in this sector and have a strong global presence in it,” added a fourth individual familiar with the private equity fund’s investment strategy. 

He added that in the past, the fund exited Hyderabad-based Gland Pharma and clocked handsome returns. 

In October 2017, China’s Fosun Group completed the purchase of a 74% stake in KKR-backed Gland Pharma in a $1.1 billion deal. KKR had put in $200 million for a 38% stake in the drugmaker in 2014.

All the sources Moneycontrol spoke to requested anonymity.

The stake sale process is aimed at raising growth capital and strengthening the Piramal group’s balance sheet, which has come under pressure due to the cash-guzzling NBFC business and exposure to the real estate sector. 

The group plans to demerge the pharmaceutical business and list it on the exchanges. 

The pharma segment contributed Rs 4,786 crore, or 36%, to the group’s revenue of Rs 13,215 crore in FY19, registering a year-on-year growth of 11%. 

A major chunk of the pharma revenue comes from complex generics and contract development and manufacturing operations.

Under its global pharma business, Piramal Enterprises has a portfolio of differentiated branded generic products that are distributed to more than 100 countries. 

It also has integrated solutions across APIs, formulations and delivery systems with 13 sites across the US, the UK and India. Back home, it has an over-the-counter business with a pan–India distribution network.

On January 17, 2020, Piramal Enterprises announced the sale of Decision Resources Group to US-based Clarivate Analytics Plc for $950 million. 

The group had in 2012 acquired DRG for $650 million, $260 million of which was infused as equity. 

The Piramal Enterprises stock has risen almost 10% in the last one month.

The S&P BSE Healthcare Index has outperformed the Sensex on a year to date basis, giving returns of 15.27% as compared to -21.47% for the latter. 

Analysts are betting on pharma stocks that have led the charge on the back of higher drug demand following the coronavirus outbreak along with faster approvals from the US drug regulator.

Ashwin Mohan