The healthcare sector which comprises of pharmaceutical, healthcare, life sciences and biotech companies is next only to the IT sector when it comes to M&A deals. The sector had in the first quarter (Q1) of 2006 seen five deals valued around $200 million.

The sector witnessed a surge of activity in 2005 with 26 overseas deals. In the first three months (Q1) of 2006, it witnessed two of the biggest deals in the sector — Dr Reddy’s acquiring Betap pharma for $570.3 million and Ranbaxy acquiring Terapia for $324 million. Over 90 per cent of the acquisitions in the sector have been made in Europe and North America.

According to MAPE Advisory’s research report on ‘India Inc Goes Abroad ? Investing and Managing Internationally’ the highly-regulated developed economies of Europe and US are becoming the key markets for most Indian companies with increasing generic push in these markets. “Most companies in the sector have made their

overseas ambitions clear by declaring their intentions to acquire more firms and we expect a fair amount of large cross-border deals in the sector,” the report added.

With these developments and the new regulatory requirements of market access a host of small deals are expected in the different markets as in the case of Glenmark Pharma.

“Given the increasing importance of India as a base for clinical trials, we foresee more deals in this sector similar to Jubilant’s buy-out of Target and Dishman’s various deals,” the report pointed out.

Clearly, buying foreign companies is often an easier and less risky way of going global than the long hard way of setting up greenfield operations. Greenfield risk is often more pronounced in newer geographies. The need to go global is basically driven for acquiring client relationships and distribution channels and not for manufacturing capacities.

The report also pointed out that more important factors are the possibilities associated with a foreign buy including expanding the product range of the acquired company, leveraging the acquired infrastructure to enter newer markets and value creation by plugging costs.

According to Jacob Mathew, director at MAPE Advisory, of late Indian companies have become the buyer of choice at most international auctions of pharma assets and investment bankers frequently talk of the new-found enthusiasm among the European and American sellers to woo Indian buyers.

Indian companies were recently reported to be seriously in the race for two billion dollar transactions in the US though in the particular cases they were edged out in the last minute by the global generic majors.

(www.business-standard.com)