American private equity giants TPG Capital and KKR & Co. Inc. have emerged as the front runners to invest ₹3,500-4,000 crore for acquiring a 20% stake in Piramal Group’s proposed pharmaceutical entity that would combine the group’s pharma businesses.
TPG’s bid is more than that of KKR, said two people familiar with the development, requesting anonymity.
The deal, once completed, may value the Piramal Group’s overall pharma business at $2.5 billion.
“Discussions with the potential investors happened a couple of weeks back. The stake sale is part of the group’s larger plan to demerge all pharma businesses, bring them under a single subsidiary and, eventually, list it on the exchanges. The stake sale will help raise working capital and price discovery,” said the first person cited above.
To be sure, the talks with the potential investors may not result in a concrete deal any time soon due to the covid-19 crisis. However, three factors are driving the talks: One, Piramal Group is in need of capital to repay promoter-level debts. Two, the group has been trying to raise capital to inorganically expand its pharma business globally, and three, demand for pharma, healthcare products and services has surged amid the covid-19 crisis, which has propelled Piramal’s stock and can help it to dictate a premium from potential investors in the pharma business.
The group has four pharma businesses, controlled by its flagship, Piramal Enterprises Ltd (PEL). Piramal Pharma Solutions is a contract development and manufacturing organisation, Piramal Critical Care is a hospital generics company with presence in 100 countries, including the US and Europe. The Consumer Products Division deals in over-the-counter (OTC) drugs, skin care, vitamins and nutrition, antacids, analgesics, gastro-intestinal and baby-care. The phytomedicines business is involved in the development of healthcare solutions from natural sources and phytopharmaceuticals.
PEL also operates several other businesses in the financial services space. The group includes a non-banking financial company. However, due to liquidity crisis in the NBFC sector, the group’s balance sheet has weakened.
As per the plan, the pharma businesses will be demerged from PEL and combined into a new entity, 20% of which will be owned by one of the two private equity players cited above, while at least 25% will be owned by the public and the remainder will remain with the promoters.
PEL has appointed Rothschild as the investment banker for the deal.
The deal may fetch PEL a premium valuation, since pharmaceutical stocks in India have risen significantly over the past few weeks due to the business prospects in the wake of covid-19 crisis.
The BSE Healthcare Index, too, rose a combined 13% in eight sessions since 23 March, while the 30-stock bellwether index of BSE gained only 6%. Among pharma business majors, stocks of Unichem Lab jumped 76%, PEL was up 45% to ₹912.45 apiece, while Abbott India gained 17%.