IHS Global Insight Perspective | |
Significance | Reckitt Benckiser (U.K.) has agreed to acquire Paras Pharma (India) for US$726 million, in line with its consumer healthcare growth strategy. |
Implications | The acquisition will bolster Reckitt Benckiser's presence within the US$1.79-billion Indian over-the-counter (OTC) market, accentuating the firm's Established Products business, which primarily deals with household, health, and personal care. |
Outlook | Reckitt Benckiser will look to expand its product portfolios in India, as well as the Gulf Cooperation Council and South Asia OTC markets following integration of Paras with its existing Indian operations. With emerging markets providing the most growth for its products, it is possible the U.K. major could look at more acquisitions to widen its reach globally. |
On 13 December, U.K. household, health, and personal care major Reckitt Benckiser announced it had agreed to buy Indian over-the-counter (OTC) major Paras Pharma for 32.6 billion rupees (US$726 million), beating off rivals such as Emami (India) and Taisho Pharma (Japan). Reckitt Benckiser will finance the transaction from existing finances. The U.K. personal care major said that the acquisition was a step forward in its growth strategy in consumer healthcare, allowing the firm to create a material healthcare business in India.
The acquisition will see Reckitt Benckiser acquire all of Paras' business segments and portfolio, which reported annual sales of 4.014 million rupees and operating earnings before interest, tax, depreciation, and amortisation (EBIDTA) of 1.083 million rupees for the 12 months ended March 2010, achieving a mid-teen average growth rate over the last four years. The business includes leading Indian OTC brands such as topical analgesic pain ointment Moov, cold and flu remedy D'Cold, and skin treatment for cracked heels Krack, personal care brands such as Set Wet (hair gel and deodorant brand), as well as its new state-of-the-art good manufacturing practice (GMP)-compliant manufacturing facility.
Reckitt Benckiser stated its confidence in the future prospects for the Indian OTC, health, and personal care markets, but did not provide any estimate for expected future revenues or growth. The OTC healthcare market in India has been valued at US$1.79 billion in 2010, with an annual growth rate of 23% (source: Organisation of Pharmaceutical Producers of India).
Outlook and Implications
Reckitt Benckiser has offered slightly less than Paras' valuation of 35–40 billion rupees—a figure 8 times greater than Paras' annual sales, and 30 times higher than its EBIDTA. This follows the trend of foreign firms paying steep prices for Indian pharma firms in order to gain already established businesses in the country, as seen with Abbott's acquisition of Piramal's Healthcare Solutions business for US$3.72 billion earlier this year (see United States - India:12 May 2010: Abbott Buys Piramal Healthcare's Solutions Business). The U.K. major beat off opposition from Japanese firm Taisho Pharma, which had previously been the forerunner with an offer six times Paras' annual revenues (see Japan - India: 5 October 2010: Taisho Pharma Top Bidder for India's Paras Pharma) and Emami.
Reckitt Benckiser is following the global trend of Big Pharma expanding their presence in India and other emerging markets, due to high market potential driven by increasing income levels, population levels, and health awareness, while also offering cost-saving options especially in the case of India, where manufacturing activities cost significantly less than developed markets. Previously, the firm had considered the Brazilian OTC market (see Brazil: 14 December 2007: Reckitt Benckiser Eyes Brazilian OTC Drug Market). This acquisition continues the British firm's investment in the fast-growing non-prescription pharmaceuticals and OTC sectors over the last four years, during which time it purchased Boots (U.K.)'s OTC business in 2006 for £1.9 billion (US$3 billion), the U.S.-based Adams cough medicines company in 2007 for US$2.3 billion (see United States - United Kingdom: 11 December 2007: Reckitt Benckiser Forays into U.S. Consumer Health with Local Acquisition), and earlier this year the SSL Durex condoms group for £2.5 billion.
Paras' product portfolio will provide the U.K. major with an already established consumer base and marketing network, bolstering Reckitt's expansion into the Indian market while expanding its product portfolio, resulting in increased revenues in the medium term following Paras' integration with Reckitt. The acquisition of Paras provides leverage in the domestic, Gulf Cooperation Council (GCC), and South Asia OTC markets, where its brands are already well-established, meaning lower brand-development and set-up costs. This acquisition, however, reduces the number of major OTC players in the market at a time the Indian government is pushing to bolster local firms and introduce more competition, which could mean a delay to authorities' approval of the deal. For the nine months ending September 2010, the U.K. major earned net revenues of £6 billion, with developing markets experiencing the highest growth at 19%. Going forward, the acquisition will further bolster revenues from developing markets as Reckitt launches new products in India and Paras' other existing markets, as well as looking to make more emerging markets acquisitions.