Deal focus: Carlyle pursues largest India animal healthcare deal

The deal

The Carlyle Group agreed in May to acquire up to 74% of Mumbai-based animal healthcare services company SeQuent Scientific for an enterprise valuation of $284 million.

The private equity firm will buy a 44.92% stake from the controlling shareholders, plus 5.69% from existing investor Ascent Capital, for INR86 per share. This triggered a mandatory offer – at the same price – for a further 26% owned by SeQuent’s public shareholders. Carlyle could end up investing as much as $210 million and holding 190.2 million shares.

The offer will run from July 1 through July 14. Carlyle is known in the market to have no plans to delist the company. SeQuent's stock closed at INR80.25 on May 8, the day of the announcement. It was trading at INR93 as of early afternoon on June 23.

Carlyle overcame rival bidders Advent International, TPG Capital, Kedaara Capital in a competitive process that started in late 2019, four sources familiar with the situation said. Apax Partners also participated, one of the sources said.

J.P. Morgan is the financial advisor for SeQuent with Nishith Desai Associates serving as legal counsel. Carlyle’s financial advisor is Nomura and its legal counsel are AZB Partners and White & Case, according to the Mergermarket database.

The asset

Founded in 2002, SeQuent started out as a manufacturer of pharmaceutical products for animals and humans. It went public in 2008 through a reverse merger with PI Drugs & Pharmaceuticals, as per its website. The company ended six years of straight losses in 2018, which coincided with a move to focus exclusively on animal healthcare.

In 2014, SeQuent launched Alivira Animal Health, a subsidiary dedicated to animal healthcare products. It has manufacturing facilities in India, Turkey, Spain, Germany, and Brazil. The company sells active pharmaceutical ingredients (APIs) – it claims to be one of the world’s leading producers of animal health APIs – formulations, and analytical services in over 100 countries. Apart from India, Turkey counts as a significant single-country market for the company, as per the company's website.

SeQuent posted INR11.8 billion ($156 million) in revenue for the 12 months ended March 2020, up 13.5% year-on-year. Net profit increased 43.7% to INR699 million while EBITDA rose 32.5% to INR1.3 billion. Two-thirds of revenue comes from animal health formulations (it offered more than 1,000 as of March 2020, with 35 products under development) and one-third from APIs (it had 26 commercial APIs and had made filings in the US and EU for 30 more).

The buyer

Carlyle is currently deploying its fifth pan-Asian buyout fund, which closed at $6.55 billion in 2018. The fund focuses on buyout and strategic investments across the region. There is also an Asian growth fund that had $300 million in assets as of April. In 2017, the firm merged its growth and buyout teams in India with a view to streamlining local operations.

Carlyle’s existing portfolio investments in India include SBI Life Insurance, credit card provider SBI Cards, e-commerce logistics specialist Delhivery, healthcare technology business Visionary RCM Infotech, South Indian Bank, medical diagnostics chain Metropolis Healthcare, PNB Housing Finance, hospital chain Global Health, and pipeline manufacturer DEE Piping Systems.

The private equity firm wants to be an early mover in the rapidly growing animal healthcare industry, the second source said. Growth is especially fast in India and SeQuent is one of the largest players in the market, the source added.

Carlyle is expected to remain invested for the long-term – up to six-seven years – and develop the business as a pharmaceutical and healthcare platform, the third source explained.

Other private equity firms are also focusing on this area. TPG Capital, acting through its global growth investment platform, made a minority investment in API specialist Solara Active Pharma in India last year. For animal healthcare specifically, there are three existing investments in the Asia Pacific region, of which two are based in India. They are Mumbai-based Ashish Life Sciences and Ahmedabad-based Concord Biotech.

The industry

With consumers paying increased attention to animal health and the quality of animal products, the outlook is positive for the industry, the first source said. Much emphasis is placed on controlling outbreaks of new and existing diseases.

There are 50-60 players in India’s animal health space, but 5-10 are dominant. SeQuent’s major rivals include Hester Biosciences, Indian Immunologicals, Indian Herbs, Natural Remedies and Alembic, the fourth source said. Competition is expected to intensify with the arrival of new entrants.

The Indian animal healthcare market is on course to be worth $1.17 billion by 2024, up from $590 million in 2015, based on a compound annual growth project of 8%, according to a June 2018 report by research agency Transparency Research. SeQuent estimates the global animal healthcare market will see compound annual growth of 4.8% over the next five years, reaching $45 billion in value by 2025.

The top 10 global players accounted for more than two-thirds of revenue in 2018. They include Zoetis, Boehringer Ingelheim, Merck & Co, Elanco Animal Health and Bayer. 

Carlyle, SeQuent Scientific and TPG declined to comment. Apax Partners declined to comment.

This is part of a series of deal focus stories produced by AVCJ and sister title Mergermarket.

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• Topics
• South Asia
• Buyouts
• Healthcare
• India
• The Carlyle Group