Eris Lifesciences has entered into a definitive agreement to acquire the Indian branded generics business of Strides Shashun Ltd & Strides Healthcare Pvt Ltd for Rs 500 crore. The all-cash deal is expected to be completed by November 30.
The acquisition will put Eris among the top 10 companies in India in the CNS (Central Nervous System) segment. The acquired branded generic business of Strides had a turnover of Rs 181 crore in FY17. The transaction is a good strategic fit for Eris and will strengthen the company’s position in the the CNS and Gastro-Intestinal therapies segment, said Amit Bakshi, Managing Director, Eris Lifesciences in a press release.
“We expect to realize cost and revenue synergies from this transaction given Eris’ strong presence in the branded business in India” Bakshi added.
In its exchange filing, Strides said the transaction is an outcome of the company’s attempt to re-prioritize its portfolio and focus on larger regulated markets. The company retains the global rights for the divested portfolio, which has significant sales in Africa. Strides also emphasized that it will continue to grow its emerging market business.
Proceeds from the transaction would be used to pay down about Rs 400 crore in debt, said Shashank Sinha, Managing Director of Strides in the accompanying release.
Amey Chalke, pharmaceuticals analyst at HDFC Securities told BloombergQuint that the India business was not material for Strides and had been underperforming. Exiting the business does not change much for Strides but allows it to reduce debt, said Chalke while adding that the company now needs to grow its Australia and US business.
In terms of valuations, this is fair deal as the EBITDA margins were low for the India business. The price of 2.5x sales is fair considering the scale of business. Amey Chalke, Analyst, HDFC Securities
Param Desai, analyst at Elara Capital said the deal will help Strides cut down its debt burden. “We still need to understand the rational behind this deal as Strides wanted to build a branded generics business earlier and now they have sold of this business,” said Desai.
Bloomberg Quint
