The deal between US pharma giant Abbott and Indian company Piramal Healthcare involved Abbott purchasing Piramal's Healthcare Solutions unit for $3.72 billion. This made Abbott the largest pharma company in India and bolstered its growth in emerging markets. The deal allowed Abbott to become the market leader in India with a 7% stake, and analysts predicted the acquisition would help Abbott grow 20% annually and reach $2.5 billion in sales by 2020. The acquisition provided Abbott with cost savings from lower production, construction, labor, and materials costs in India compared to the US, reducing costs by an estimated 90%. Both companies benefited from the deal - Abbott gained access to new markets and market share, while Piramal
The deal between US pharma giant Abbott and Indian company Piramal Healthcare involved Abbott purchasing Piramal's Healthcare Solutions unit for $3.72 billion. This made Abbott the largest pharma company in India and bolstered its growth in emerging markets. The deal allowed Abbott to become the market leader in India with a 7% stake, and analysts predicted the acquisition would help Abbott grow 20% annually and reach $2.5 billion in sales by 2020. The acquisition provided Abbott with cost savings from lower production, construction, labor, and materials costs in India compared to the US, reducing costs by an estimated 90%. Both companies benefited from the deal - Abbott gained access to new markets and market share, while Piramal
The deal between US pharma giant Abbott and Indian company Piramal Healthcare involved Abbott purchasing Piramal's Healthcare Solutions unit for $3.72 billion. This made Abbott the largest pharma company in India and bolstered its growth in emerging markets. The deal allowed Abbott to become the market leader in India with a 7% stake, and analysts predicted the acquisition would help Abbott grow 20% annually and reach $2.5 billion in sales by 2020. The acquisition provided Abbott with cost savings from lower production, construction, labor, and materials costs in India compared to the US, reducing costs by an estimated 90%. Both companies benefited from the deal - Abbott gained access to new markets and market share, while Piramal
The deal between US Pharma giant Abbott and Piramal Healthcare
involved the purchase of latters Healthcare Solutions unit for $3.72 billion. According to the agreement, the purchase of assets was through a $2.12 billion up front payment with $400 million annual payments for four years beginning 2011. The deal not only made Abbott the largest pharma company in India but also bolstered the emerging markets growth for the company. The deal resulted in Abbott becoming the market leader in India with a 7 percent stake in the market. According to market analysis, the pharma sector sales were as high as $8 billion in 2010 and were expected to double by 2015. Analysts from Abbott predicted that the resulting deal with Piramal Healthcare will help the firm grow at 20 percent year on year and the sales will reach $2.5 billion by 2020. The deal with Piramal was not the first acquisition for Abbott as it had purchased Belgian chemical giant Solvay in September 2009, which allowed it to strengthen its presence in emerging markets in Asia. The deal also allowed Abbott a control to the Indian subsidiary of Solvay, Solvay Pharma India. The main reasons for Abbotts purchase of Piramal can be identified as follows 1. Reduction in expenses in forms of approvals from regulatory authorities, which is also a time consuming process. 2. Abbott gained access to markets of Tier 3 cities, where it was not present and along with this it was able to leverage the sales force of nearly 7000 employees of the combined entity. 3. Abbott had revenues of about 950 crores from India and was at 18th position in the Indian Pharma market. The deal saw Abbotts revenues rising through to 2950 crores in a short duration and allowed the firm to reach the paramount position in the Indian pharma market. 4. Other advantages for Abbott include a. Lower Production Costs Production costs in India are nearly 50% lower than those in US b. Plant construction costs (FDA approved) are lower in India (30-50%) as compared to US c. Manpower costs in India are nearly 1/10th of those in US. Thus the acquisition resulted in reduction of nearly 90% of production costs. (The cost savings are applicable
across all hierarchical levels i.e. from operators,
research scientist etc.) d. Savings in Raw Materials Bulk drugs in India can be manufactured at 40-50% of the ethical costs as compared to US. A lot of raw materials are available locally thus reducing the manufacturing costs. Also, the Excipients and Intermediaries are sourced locally at 2030% lower costs. Piramals plans for Deal Proceeds 1. Piramal paid capital gains tax of 22% 2. The firm used the balance to pay off 1300 crore debt 3. The remainder was available for providing funds to expand existing businesses and for undertaking new businesses 4. Piramal sold branded generics and retained the technology driven businesses. EPILOGUE Today Global pharmaceutical companies are no longer looking at acquisition merely as a tool to achieve cost optimization but as a means to grow through portfolio expansion as they face the mounting pressure of several drugs going off patent in matured markets. The deal between Piramal and Abbott is considered to be as one the most successful deals in the Indian Pharmaceutical industry. Both the parties were in a win-win situation at the completion of the deal. From Abbotts point of view, it got access to all the Piramals branded drugs. It bolstered its growth strategy in the Asiatic developing regions and got a great market reach. From Piramals point of view, the biggest advantage was that it got a very high value for its business and was able to reduce its debt obligations and besides this they were able to work on the expansion plans for their other businesses with ease due to the cash inflow. The deal also helped bringing in Indian pharmaceutical sector in a good light after the debacle of Daichi and Ranbaxy deal, where there was a lack of clarity, undisclosed facts between the two companies, and a sub standard due diligence for the deal.