Mukesh Ambani’s deal-making spree since April, which garnered a cumulative $ 15.2 billion for his telecom and broadband firm Jio, amid the pandemic, had everyone agog. Now it’s the turn of billionaire Ajay Piramal, whose son, coincidentally, is married to Ambani’s daughter, to make a splash. In one of the largest private equity deals in the pharma sector in recent times listed Piramal Enterprises agreed to sell a 20% stake in its pharma subsidiary for $ 490 million to private equity firm, The Caryle Group.
The proceeds of the deal–which will formally close later this year–will go towards funding growth and more crucially, reducing debt, which stands at $ 5 billion (as of March 31, 2020). The $ 1.7 billion (revenue) Piramal Enterprises has two main lines of business, financial services and pharma, with the former accounting for close to 60% of its annual revenue.
“This is an affirmation of the strength of our ability to build new, attractive and scalable businesses with a significant runway for continued organic growth and opportunities for consolidation,” said Piramal in a statement. “This infusion of funds will further strengthen our balance sheet and provide us with a war chest for the next phase of our strategy.”
As part of the stake sale, Piramal Enterprises plans to integrate all its pharma businesses under Piramal Pharma, which will encompass contract research, specialized drugs and over-the-counter drugs in India. It will also include a joint venture with eye-care major Allergan India and specialty chemicals maker Convergence Chemicals.
“Piramal Pharma has built a strong, diversified pharma business with a solid market position and scale in each of its core business segments of Pharma Solutions, Critical Care and Consumer Products,” said Neeraj Bharadwaj, managing director of Carlyle Asia Partners’ advisory team. “Given global pharma industry trends, we see attractive opportunities for organic as well as inorganic growth in each of these businesses.”
Carlyle has already made other bets on Indian healthcare with stakes in Medanta Medicity Hospital in Delhi, Mumbai diagnostics chain Metropolis Healthcare and Mumbai animal healthcare outfit SeQuent Scientific. The Piramal acquisition will be through an affiliated entity of an investment fund managed by Carlyle, which has $ 217 billion in assets under management. The firm said in a statement that there could be a higher payout up to a maximum of $ 360 million. But that will be pegged to the company’s performance in fiscal 2021. The final equity investment amount will be based on certain performance parameters.
“This deal turns the spotlight on the pharma business, clarifies the group structure and unlocks value,” says Alpesh Mehta, deputy head of research at Mumbai investment outfit Motilal Oswal, who tracks Piramal Enterprises. “The valuation is also more or less in line with peers. I think this a positive step towards the eventual de-merger of the pharma business.”
This is the second act in pharma for Ajay Piramal, who started out in the family’s textile business in 1977 and diversified into pharma with a series of acquisitions starting in the late 1980s. In 2010, Piramal sold the domestic pharma formulations business for $ 3.7 billion to Abbott Labs, sealing his reputation as a shrewd dealmaker. Following that landmark sale, he expanded into financial services but continued to grow the remainder of his pharma business to a size significant enough to attract Carlyle.
Revenues at the pharma arm have grown more than three-fold in the past decade to Rs. 54,190 million ($ 719 million) in fiscal 2020 from Rs. 15,370 million ($ 345 million) in fiscal 2011.
Piramal, with a net worth of $ 2.3 billion, has been navigating the credit crisis that hit the country’s property market over the past year. Shares of Piramal Enterprises took a hit on concerns that the financial services business was overly exposed to debt-ridden developers. Over the past year, Piramal has deleveraged the company’s balance sheet, shrunk the loan book by 12% and created additional provisioning.
He has also reduced net debt to $ 5 billion from $ 8 billion through a series of measures, including a rights issue for $ 520 million last October and a preferential allotment of $ 250 million to existing Canadian pension investor Caisse de dépôt et placement du Québec (CDPQ) in December. In January, he sold the conglomerate’s healthcare insights and analytics business, DRG, for $ 950 million.