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M&A deals in healthcare industry in India grows close to $2 billion in first half of 2021

Gireesh Babu, New Delhi
Monday, September 13, 2021, 08:00 Hrs  [IST]

The merger and acquisition (M&A) deals in the healthcare industry has seen a jump in terms of value in the first six months of the year 2021, to $1.9 billion as compared to $772 million during same period of previous year, owing to factors including digitisation, supply chain optimisation, new business models and incubation.

According to data from Venture Intelligence, a leading source of data and analysis on private company financials, transactions and their valuations in the country, the first half of 2021 has seen 23 M&As of which the 18 deals with announced value have shown that the mergers and acquisitions have seen $1.89 billion worth of deals. This is compared to the 14 deals (of the total 27 deals during the period) seeing a transaction of $772 million in the same period of previous year.

The deals during the first half was led by PharmEasy acquiring Thyrocare Technologies for $612 million in June, 2021 and a set of PE firms acquiring the entire stake of Cadila Healthcare’s animal health business for $396 million in May, 2021. Advent International’s investment of $275 million in the active pharmaceutical ingredients business of ZCL Chemicals, Acasti Pharma’s investment of $138 million into biopharma firm Grace Therapeutics are some of the other top deals in the sector during the first six months of this year, states Venture Intelligence data.

Experts from law firm Trilegal, which has experience into M&A and Private Equity in the country, say that as of first half of 2021, deals in the healthcare and lifesciences space amounted to $2.1 billion, interspersed between investments in hospitals, medical devices manufacturing, pharma and biotech, primary healthcare and others. Apart from Pharmeasy’s acquisition of Thyrocare and Medlife, Tata Digital’s investment in 1mg, Dr Reddy’s Labs’ acquisition of Wockhradt’s generic drug business are some of the other noteworthy deals in the sector thus far.

“Despite all the Covid related issues, a number of businesses (especially those focussed on digital offerings) were not adversely affected. In 2021, deals in this sector have been driven positively by factors such as digitisation, supply chain optimisation and new business models and incubation, propelled by regulatory developments and ease around healthcare infrastructure building and telemedicine guidelines etc. FDI inflows maintain India's credentials as a safe and key investment destination for pharma and healthcare sectors with a huge growth potential, which has only just about started unfurling now,” said Yogesh Singh, partner and co-head, corporate practice, Trilegal.

Covid has revealed, if not exposed, the frailties of the healthcare systems across the world, including in India.

“We have learnt a lot and there would never again be an opportunity like this to rethink and leverage India’s capabilities in these sectors,” said the law firm.

Indian regulators need to think pragmatically and move full steam towards encouraging investments and building a stronger system bedrocked on local manufacturing, new technologies, new delivery models for providing healthcare with a sense of purpose and urgency.

Being one of the top ten sectors for foreign investment in India, the industry is expected to reach $65 billion by 2024 and double that by 2030. The government’s initiatives such as setting up bulk drug parks schemes and promotion linked incentive schemes among others and enhanced allocation in the 2021-2022 fiscal budget towards support for health and wellness centres, setting up of integrated public health labs etc. are reflective of its assessment of the prospects of the industry as well as the opportunities for stakeholders in the sector.

The growing anti-China sentiment coupled with India being a cost-effective manufacturing hub also works to the sector’s advantage, and is expected to push API manufacturing capabilities in the country. That said, regulatory measures such as approval requirement for >74% FDI in brownfield projects, drug pricing, prescribed minimum R&D expense thresholds etc. are seen as dampeners to the prospects. Concerns around IPR enforcement continue to worry investors, said the law firm.

The sector is yet to see ground-breaking amendments in the FDI regime since the opening up of brownfield projects to FDI up to 74% in 2016. While M&A activity in the sector continues to be an attractive proposition for offshore investors, there remains room for easing the FDI norms. Further, the impending e-pharmacy guidelines coupled with conflicting judicial precedents on the legality of e-pharmacy business models pose a lingering uncertainty for investors. Boost in M&A activity in the sector could be propelled by positive and prompt action on these fronts, added Trilegal experts.


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