This is the space where I jot down my observations on the healthcare industry
Saturday, 25 July 2015
JPMorgan to fund Lupin’s $880-million Gavis deal
PMorgan will bankroll Lupin for its $880 million acquisition of Gavis, a New Jersey-based generic drug firm.
The Wall Street bank will act as guarantor till the date of payment, which is some weeks away, and then lend the full deal amount that Lupin will have to repay over a medium term period, said a person who is aware of the transaction
The loan, it's understood, is not backed by hard collateral or claims on future cashflow, but based on pure credit assessment. "Lupin will have enough time to arrange funds to pay off the loan...JP is not holding a gun to their head," said a source.
The acquisition financing arrangement was cobbled together after the seller insisted on a guarantee.
A spokesperson for JP Morgan India declined to comment on the deal while ET's email to a Lupin spokesperson went unanswered till the time of going to press.
On Thursday, Lupin, a Mumbai-based pharmaceutical company, announced that it would take over Gavis, which is run by Veerappan Subramanian.
It would be the biggest outbound transaction in the Indian pharmaceutical industry.
JP Morgan is also the sell side advisor in the deal. "What's unusual is the absence of other bankers and JP writing the cheque for the entire amount which is not small," said a seniior banker.
Two industry sources said that Lupin had placed the bid for Gavis and another UKbased drug firm specializing mainly in dermatological brands, which was also valued at $700-900 million.
Earlier in the year, Lupin's name had cropped up as a bidder for Kremers, the US generic drugs business of Belgian drug firm UCB.
Analysts are divided on the Gavis deal. Being valued at 9 times 2014 sales and 6 times 2015 sales, some feel it's an expensive acquisition.
Indeed, one Mumbai-based investment expert said the deal does not give comfort on the payback time, especially due to a lack of clarity on the potential upsides from the launch pipeline of Gavis. However, another analyst thinks Lupin that has paid full price for a good asset in contrast to some generic peers who typically acquire assets at distress value. "If the margins are sustained at 35% to 40%, we see Gavis to give the right push to Lupin," he said requesting anonymity.
Lupin itself has been a conservative buyer and has not paid a very heavy price for any of its global deals.
On the Gavis deal, Lupin said that it hoped to leverage on at least 50 of the 66 future filings of Gavis to treble revenues by 2017-18. On Friday at the BSE, Lupin stock ended down 3% at Rs 1672.