Piramal Adds To His Empire

The acquisition bug has bitten Ajay G.Piramal, yet again. Within a month ofacquiring the molecular imaging research and development portfolio of Bayer Pharma AG, Piramal has made his biggest acquisition so far.

On May 16, Piramal Healthcare bought theUS-based healthcare analytics firm DecisionResources Group (DRG) for Rs 3,400 crore, toforay into a new business area. The three decade-old, privately-held DRG, with a turnoverof $160 million is one of the largest players in the$5.7-billion healthcare information industry.DRG claims to have grown at a 20per cent compounded annual growth rate in the last five years.

"The acquisition is part of our strategy to create new business portfolios with high long-term growth driven by increasing market themand high long-term margin potential due to IP (intellectual property) orother proprietary advantages", says Piramal.

Information management companies generally collect data on specific industry verticals and organise it into useful information to sell to consumers in industries where information arbitrageis important and decision risks are high. Major players in the field include Forrester Research,Reed Elsevier, Gartner Group, Thomson Reuters, IHS and Wolters Kluwer.

Margin pressures are forcing large drug firmsand companies to outsource their information needs. DRG employs about 290 analysts andaddresses a $2.4 billion segment of the health care industry comprising biopharma, medicaltechnology and market access data. The company claims that 48 of the top 50 drug manufacturing companies are its clients.

Piramal says the acquisition is a perfect fit for Piramal Healthcare, now operating in businesses such as drug discovery, contract manufacturing and critical care, financial servicesand defence. Not only is DRG's business highly profitable, it is also a low investment business with significant growth potential. Piramal's relationship with leading global pharma companies and its domain knowledge and networkacross India and other emerging markets willhelp DRG to expand its business.

"It is a good acquisition considering thegrowth of DRG. Moreover, Piramal Healthcarewill now be able to access data of the top 50drug companies and a big talent pool of expertsin healthcare for its own business growth," says Ranjit Kapadia, senior vice-president at Centrum Broking.

However, the acquisition did not cause muchexcitement among the retail investors of PiramalHealthcare. Its share price opened trading at Rs427.60 per share on 16 May and closed the day atRs 431 per share. Industry analysts note that PiramalHealthcare — which amassed $3.8 billionfrom the sale of its formulation division twoyears ago — is borrowing about Rs 1,700 crore tofund the DRG acquisition. The company has investedover Rs 5,000 crore in two tranches topick up a 11 per cent strategic stake in telecommajor Vodafone. It is also investing in variedbusinesses such as defence and homeland securitysolutions, which are totally new arenas forPiramal Healthcare. But Ajay Piramal has takenrisks previously and they have alwayspaid off. He got out of the textilebusiness and entered pharma,acquiring a string of companies tocreate the Piramal Healthcare empire.His new acquisition may alsobe based on that confidence.

(This story was published in Businessworld Issue Dated 28-05-2012)