Billion dollar club grows

Although there were no large M&As or IPOs in 2012, India has a dozen companies in the generic space with a market cap of more than $1 billion and seven with a market cap of more than $3 billion. After Teva, the generics club is dominated by Indian pharma

Financially, 2012 has been a successful year for the Indian health sciences industry, with sizeable shareholder value creation and rebound in deal activity (especially outbound); however, there was almost no activity on the IPO front. On the business front, most companies reported good resultsóa stark contrast to the dismal performance of other manufacturing sectors in corporate India.

In retrospect, there are some crucial trends that can be identified.

Limited large M&As

We haven't seen a deal comparable to Nicholas-Abbott or Paras-Reckitt in the last two and a half years. While there have been several murmurs of a large deal in media circles, nothing seems to have fructified yet. The biggest challenge on closures continues to be valuation expectations of the Indian promoter. Any big pharma deal announcement in the sector in 2013 would, in all probability, throw up a new benchmark for valuing multiples. The earlier marquee deals (Nicholas, Paras, Ranbaxy) have redefined the way global companies view Indian businesses and we, at Candle Partners, believe this trend will only continue.

Sub-$250 million space

Surprisingly, in the mid-sized deals space, specifically the API space, we noticed sizeable M&A activity, with Hospira buying the Penicillin API business of Orchid for around R1,100 crore, Mitsui doing a secondary sale deal in Arch Pharma (incremental 26% stake) for around R372 crore and Mylan buying the Oncology API business of SMS Pharma for around R173 crore. In the injectible space, Claris entered into a uniquely structured joint venture agreement with two Japan-based drug makers Otsuka Pharmaceutical and Mitsui & Co in a deal valued at R1,313 crore.

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