Merger Of Suven Pharma And Cohance To Be Earnings Accretive, Says Advent

Advent International expects the acquisition and merger of Suven Pharmaceuticals Ltd. with Cohance Lifesciences Ltd. to be earnings accretive.

The private equity firm sees an opportunity to create India’s third largest contract development and manufacturing organisation by combining Suven Pharma with Cohance, very much like Divi’s Laboratories Ltd., Sweta Jalan, managing partner and head of Advent International, told BQ Prime over the phone.

The combined company will focus on three high-growth markets: the global pharma market, the specialty chemicals market, and the API market, all of which play into the China-plus-one thesis, Jalan said.

The merger is subject to board, shareholder and regulatory approvals.

Advent intends to acquire 50.1% of Suven Pharma from the Jasti family, the promoters, according to an exchange filing. The private equity firm will buy 12.75 crore shares at Rs 495 per share, for a total of Rs 6,313 crore. In addition, Advent and its associates will have to buy 26% via an open offer at Rs 495 per share, the company said. If fully subscribed, that would cost an additional Rs 3,276 crore, bringing the total deal value to Rs 9,589 crore.

The Jasti family will continue to hold 9.9% after the acquisition.

The entire process of the open offer will take four to six months complete, after which Advent will initiate the merger process with Suven Pharma.

The swap ratio and other metrics will be worked upon at that time, said Jalan. The acquisition creates a company that is twice the size of Suven Pharma today, Jalan said. Suven is already a 44% Ebitda margin business, and Cohance is a 28%.

The combined business will result in a very healthy Ebitda margin business and a high return on capital employed, she said. Both companies have grown at a 21% compounded annual growth rate in the last five years, and the financial metrics will look very strong for the merged entity, she said.

The merger could take up to 12 months to complete, subject to all regulatory approvals.

Advent expects the merged entity to have significant synergies. “Cohance has a very large number of global innovator relationships; we could use those relationships and sell the Suven capabilities to the Cohance customer base,” Jalan said.

Cohance has invested significantly in capex, and that can be used for the Suven client base. The standard selling, general, and administrative expenses leverage when both companies are combined, which are on an equal scale, she said. “Our hope is that this will be an EPS-accretive acquisition for Suven shareholders.”