Blackstone and Advent may buy control of Suven Pharma

The Hyderabad based Suven Pharmaceuticals may soon be changing ownership as private equity players are vying for the stake that the promoters are planning to hive off. As of now, based on what we know, it looks like two private equity investors viz. Blackstone and Advent International are in advanced talks with the promoters of Suven Pharma for the stake. However, it must be noted here that it is not a joint bid. Both are talking separately with the promoters of Suven Pharmaceuticals to buy a controlling stake. The final decision is expected to be announced over the next few weeks.

Currently, the promoter group of Venkatesh Jasti is holding around 60% stake in Suven Pharmaceuticals. However, they are now planning to hive off close to half of their stake or 30% stake in the business to private equity players. It must be noted that once this 30% stake sale is done by the promoters of Suven Pharma, it would also trigger an open offer for 26% of the public shareholding in the company. That means, the buyer will have to mandatorily make an open offer to the minority shareholders of Suven Pharma to buy out up to 26% in the company and enhance their stake to above 55%.

Currently, the market cap of Suven Pharma stands at around Rs10,630 crore. Hence the promoter stake of 60% in Suven Pharma would have an approximate market value of Rs6,378 crore. If the promoter plans to sell half the stake then it would be valued at around Rs3,189 crore. However, the promoters are likely to expect a control premium to the price since the buyer will get controlling stake including the subsequent open offer. Apart from this amount, the buyer will have to eventually shell out another Rs1,700 crore for the open offer to shareholders. The total cost to the buyer would be closer to Rs5,000 crore.

It may be recollected that in 2019 Suven Life Sciences had demerged its contract manufacturing business into Suven Pharmaceuticals to unlock value. Eventually, Suven Pharma had gone public in March 2020. As of now, neither Blackstone nor Advent have put in any comments on this subject. The bidders are quite interesting. Pharma sector is old territory for Advent as it already holds a number of pharma companies in its portfolio. However, it would be a new experience for Blackstone, which has traditionally been a dominant player in India in the real estate space and the REITs space.

Phare companies have been on the radar of PE (private equity) firms for quite some time now. For instance, there has been aggressive buying in pharma firms by leading PE firms like Advent, Carlyle, PAG and KKR in the past. Such buys have ranged from formulations to active pharmaceutical ingredient (API) makers and contract drug development and research companies as well as CDMO companies. Among these PE firms, Advent is the only one to have set up a dedicated platform to acquire and manage pharma assets and created a portfolio of pharma franchises in India.