KKR set for $576m windfall from Gland Pharma exit

Fosun Pharma and Fosun International - which disclosed in May that they had entered the bidding for Gland - said in a filing that a unit of Fosun Pharma would pay up to $1.26 billion for a 79.99% interest in Gland. It will also subscribe to convertible preference shares in the company worth $60.8 million. Upon conversion - an IPO is planned within five years - the Chinese investor would own 86.08%.

KKR's commitment to Gland is said to have been worth around $230 million, comprising the acquisition of equity from existing shareholders in two entities for $191 million plus fresh capital to support the company's growth. The private equity firm holds a 38.41% stake that it will sell to the Fosun Pharma. Based on an initial investment of $230 million, it would make a 2.5x return.

Fosun Pharma will buy a 31.56% stake from the founder shareholders of Gland for $473.9 million and a 10.02% interest held by the Vetter family for $100.3 million. Up to $50 million more will go to the founding shareholders based on when one of Gland's products receives US Food & Drug Administration (FDA) approval. They will also retain a 10% stake in the business and have the right to sell this to the buyers for up to $180 million within an agreed period.

Founded in 1978, Gland manufacturers generic injectable drugs that are used in nearly 90 countries, although India and the US remain its core markets. Gland entered into a partnership with the Vetter family - owner of Germany-based Vetter Pharma, a global leader in pre-filled syringe technology - in 1996 and nine years after that became the first Indian company to receive FDA approval for pharmaceutical liquid injectable products.

KKR was attracted to Gland due to its cost advantage as an India-based manufacturer and its strong position in an industry struggling with product shortages, notably in the US. It is also vertically integrated, making many of the active pharmaceutical ingredients used in its drugs and thereby allowing greater control of the process.

Since the investment, Gland has established a new manufacturing plant, optimized its existing facilities, enhanced its R&D capabilities, and filed for more intellectual property. Net profit came to INR3.13 billion ($46.7 million) for the 12 months ended March 2016, up from INR2.09 billion a year earlier.

Qiyu Chen, chairman of Fosun Pharma, said in a statement that the acquisition will strengthen the company's global presence and enable it to provide more high-quality products and services. P.V.N. Raju, Gland's founder and his son Ravi Penmetsa will retain their board seats, and Penmetsa will continue to serve as managing director and CEO. The company will also remain headquartered in Hyderabad.

This is KKR's second announced Asia healthcare sector exit in a week, following an agreement to sell its 45% stake in Australia-based GenesisCare. The buyer is also a Chinese strategic player, with China Resources Group - in partnership with minority investor Macquarie Capital - set to buy a majority interest in the business at an enterprise valuation of A$1.7 billion ($1.3 billion).

In March, KKR confirmed the exit of another company in its India portfolio as Yokohama Rubber has agreed to acquire Alliance Tire Group for $1.2 billion.

Simpson Thacher and Cyril Amarchand Mangaldas provided legal advice to KKR and Gland on the latest deal, while Jefferies acted as exclusive financial advisor. The transaction is subject to regulatory approval.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• South Asia
• Healthcare
• Trade sale
• India
• KKR
• Fosun Group
• Exit