For every 295 shares of Cohance, 11 new shares of Suven will be issued, the companies said in a statement after the Suven board meeting.
Suven has been 50% owned by Advent with the remaining with public and institutional shareholders while Cohance is wholly owned by the PE group. Now post merger, Advent will own 66.7% in the combined entity and the public shareholders the rest.
Suven has been valued at 31 times 12 months trailing (December) EBITDA at approximately Rs 532 crore crore while Cohance has been valued at a 30% percent discount to Suven’s multiples because it’s a combination of a CDMO and API businesses. Other similar peers like Laurus Labs, Shilpa Medicare, NewLand Labs and Piramal Pharma trades at 15% discount to Suven Pharma over a 2-3 year period.
Suven’s pre-merger market cap is Rs 16, 500 crore. Post the merger the implied value of the company will be around Rs 24,000-25,000 crore.
Other private equity peers like Carlyle and PAG too have created similar platforms but they are smaller in scale so far.
Cohance is a culmination of acquisition of RE Chem in mid 2020 and subsequent roll up buyouts of two more assets ZCL Chemicals and Avra Labs between 2020-2022. The three were there subsumed under the Cohance Lifesciences platform. The combined revenues of the three companies under Cohance stood at Rs 1350 crore and combined EBITDA of Rs 420 crore. Post merger with Suven, the combined revenues will become around Rs 2700 Cr (FY23) post the merger with Suven.
The combination will get to 2x scale across revenues, customer relationships and capacity. It will also lead to synergies to cross sell based on customers, chemistry capabilities and capacity. It will also seed three verticals under the same roof: Pharma CDMO, Agichemicals CDMO and API. While listed peers Divis Labs have the twin verticals of Pharma CDMO and API, they have failed to comparatively scale up in agro-chemicals CDMO. Similarly PI industries has a strong foot print in Agrochemicals CDMO is only now attempting to enter API, said industry analysts.
Contract manufacturing has come under the focus as global pharma companies are seeking alternatives suppliers to China. The merger creates a scale integrated CDMO player with strong development and manufacturing capabilities for innovators. In India only players like Divi’s Labs have scale, a strong history of development services and manufacturing capabilities.
“Drawing inspiration from global peers with similar end-to-end capabilities, we are confident in our ability to scale globally,” said Shweta Jalan, Head of Advent International in India.
Financial metrics of the combination too have comparable if not better compared to other peers. The blended EBITDA margins are likely to 35%+ vs. other local players who have margins between 25-30% (eg Divis, Syngene, Laurus and PI) and global players with margins below 25% (Cambrex etc).
It is likely to be double digit EPS accretive without synergy benefits being taken into account. Minority shareholders also benefit, feel industry analysts as the combined entity will have mid-30s EBITDA margins, 30%+ return on capital employed RoCE and steady cash flow generation over FY20-23. “The combination helps us drive multiple synergies both on revenue and cost front,” said V Prasada Raju, Managing Director, Suven.
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