Advent International to take a majority stake in Suven Pharma

The talks between the Hyderabad based Suven Pharma and some of the leading global PE funds have been on over the last few months. Now the word is finally out that one of the world’s leading private equity funds, Advent International, would be suitor to win the deal to buy out a majority stake in Suven Pharma. To begin with, Advent International will buy 50.1% stake in Suven Pharma at a price of Rs. 6,313 crore. The bigger plan was to merge Suven Pharma with Advent’s own company, Cohance Lifesciences. Post the deal, the promoter Jasti family will hold just about 9.9% stake in Suven Pharma. The deal is subject to the receipt of necessary regulatory approvals.

In addition, under the extant SEBI guidelines, after buying the 50.1% stake in Suven Pharma, Advent International will also launch an open offer to buy out another 26% from minority shareholders of Suven Pharma at a price of Rs495 per share. Assuming that the open offer is fully subscribed to by the minority shareholders, it will entail an additional Rs3,276 crore. Overall, combining the 50.1% stake purchase and the open offer made, Advent International will own over 76% of Suven Pharma and would have paid close to Rs9,589 crore for the deal. Post the deal, the original promoters will have less than 10% stake in the company. The entire deal is expected to be completed end to end in a period of 5 to 6 months.

For now the swap ratio is being worked out and other finer details of the deal would be communicated in the next few days. Incidentally, Suven Pharma was formed through demerger of the CDMO business from Suven Life Sciences in the year 2020. CDMO or Contract Development and Manufacturing Operations is one of the big growth areas in the pharma spaces wherein specialized pharma companies like Suven Pharma outsource the entire gamut of such activities on behalf of larger pharma companies. This particular segment of the pharma business has clocked 20% CAGR growth over the last 4 years while the EBITDA margins of 43% in this business has made it extremely attractive sweet spot.

The promoter holding of 9.99% will have an 18-month lock-in period in Suven Pharma and underlined that the family did not plan to sell the residual stake but instead planned to hold on as a long term investment in the fast growing CDMO business in India. However, Jasti would not be the managing director of Suven Pharma any longer but will remain in his capacity as a consultant and advisor considering his vast experience in the field. Suven Pharma has focused nearly 90% of its business with innovators and also boasts of a strong pipeline of Phase 3 and late Phase 2 molecules with over 100 existing active projects.

For Advent International, merging Suven into Cohance would have a larger purpose from a business standpoint. It will help Advent build a strong end-to-end CDMO and merchant API (active pharmaceutical ingredients) franchise in India that services the pharma and specialty chemicals markets under a single roof. Both are high growth businesses where India has the potential to replace substantial chunk of what China has been contributing to the global supply value chain all these years. For Suven Pharma, a deep funding pocket was the key and the entry of Advent International will provide the much needed funding support to take Suven Pharma to the next level and compete in the global marketplace in size and reach.

For Advent, the deal offers a good opportunity to strengthen its new age pharma footprint in India. To that extent, it should be a win-win transaction either ways. Advent, with its deep pockets and domain expertise, will gradually build on the existing franchise and capabilities of Suven Pharma to emerge as one of the global leaders in the CDMO space. The deal will allow them to scale up manufacturing and R&D at Suven Pharma in a big way. Post the mergers, the combined entity of Suven and Cohance will have 3 strategic growth vectors spread across pharma CDMO, specialty chemicals and merchant API. This would also substantially de-risk their business model and preparing them for the next phase.

Suven currently gets nearly 90% of its revenues from the global regulated markets, which is what makes it specifically attractive to Advent International. The eventual open offer price to the minority shareholders is marginally higher than the current market price of Suven Pharma. For the full fiscal year FY22, Suven Pharma had reported total revenues of Rs. 1,320 crore and PAT of Rs558 crore, implying a salivating net profit margins of 42.27%.