The value of mergers and acquisitions by Indian pharmaceutical and healthcare companies has declined sharply in the second half (H2) of 2007-08, suggesting that heady days of large buyouts are almost over.
While the April to September period (H1) saw as many as eight major deals worth over Rs 5,000 crore (Rs 50 billion), the second half of the year saw a sharp drop in the value of such deals to about Rs 1,500 crore (Rs 15 billion).
Though the number of deals in H1 and H2 is almost the same, the sharp decline in value in the second half indicates a clear change in outlook and strategy of companies, say industry experts.
The main reasons for the decline, experts say, are concerns related to economic slowdown and a history of failed overseas acquisitions by Indian companies.
High valuations of brands in the domestic market and a lack of viable facilities in India and abroad have also contributed to the slowdown, they add.
Many CEOs are now averse to the idea of large buyouts that involve huge risks and chances of delayed integration - like in the cases of the Betapharm buyout by Dr Reddy's, the Matrix-Mylan deal, and attempts of Sun Pharma to acquire Taro of Israel.
Major companies now prefer small-but-strategic buyouts of brands or synergistic assets like Ranbaxy's investment in Zenotech Laboratories for accessing its oncology drug portfolio.
"Managements have realised that though it is sensational and patriotic to buy big companies in overseas territories, the real synergies are very difficult to achieve.
The greed for big growth in quick time will bleed profits for many years," said a top executive of a large pharmaceutical company in Mumbai.
Indian companies went on a euphoric buying spree, but in most cases the integration process a long time, or did not happen at all, said Sujay Shetty, associate director, PricewaterhouseCoopers.
"Now the global economy has changed and private equity players are asking aspiring acquirers to do their homework thoroughly before buying a target," he added.
"A majority of Indian companies targeting overseas acquisitions are looking at marketing front-ends rather than manufacturing assets since we can cost-effectively make those products in India. But companies with good marketing set-ups that are up for sale have almost dried up in Europe and US," said Rajendra Kaimal, executive director, Arch Pharmalabs.
According to Sarabjit Kaur Nangra, vice-president and senior pharma analyst, Angel Broking, many leading Indian companies have exhausted a good portion of their reserve funds on expansion.
