Global investors, private equity firms triple investments in India's API sector
Three private equity-led investment platforms have been created specifically targeting the API space, while at least half a dozen transactions are invarious stages of negotiations, according to bankers and fund managers
With the pandemic reshaping India's active pharmaceutical ingredients (API) sector's fortunes and boosting valuations, API space is now a sought-after investment destination for global bulge-bracket investors and private equity managers.
The API sector has seen a three-fold increase in investments in 2021 compared with a year ago, report The Economic Times.
Three private equity-led investment platforms have been created specifically targeting the API space, while at least half a dozen transactions are invarious stages of negotiations, according to bankers and fund managers.
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These include Carlyle Group's $300-million platform with former Mylan India CEO Hari Babu, Advent's $400-million platform with RA Chem and Hong Asia-focused PE firm PAG's $200-million platform with Samara Capital and CX Partners. M&A and PE transactions in API space more than doubled during 2021 to $800 million compared with $293 million in 2020 and just $30 million in 2019, according to data compiled by EY.
"There are macro and micro tailwinds driving investor and strategic interest in Indian API assets and businesses in the last 24 months," said Rahul Sakia, head of M&A & strategic alliances at Rising Pharmaceuticals, which recently concluded a strategic transaction with US-based HIG Capital.
"Realization and intent do not create capacities over time - the demand/supply mismatch resulted in increase in API prices, sharp spike in valuation in API businesses and M&A interest - both strategic & PE," he said.
India began its journey in becoming a key supply hub in the global pharmaceutical ecosystem during the 1970s with a strong bulk drug industry as its backbone. Over time, the industry advanced toward more value-added formulations - branded generics for the domestic market, generics for the regulated markets and semi regulated markets, and for some the pursuit of new chemical entities (NCE) - shifted focus away from the API base.
As new competitors specifically from China came up the ranks, it resulted in India being dependent on imports for API and KSM (key starting materials) excipients.
"Several of the buyout shops, which already have platforms in the API space, would continue to be on the lookout for bolt-on acquisitions. In addition, there is significant new dry powder waiting/available to be deployed," said Subhakanta Bal, MD, Rothschild & Co.
