KENYA – Pharma Strides Shasun, which is listed in India, is set to buy a majority stake in Kikuyu-based drug manufacturer Universal Corporation Limited (UCL) for Sh1.1 billion ($11 million).
Strides Shasun, listed on the Bombay Stock Exchange, announced that it will acquire a 51 per cent stake but the sales price could rise further if UCL hits its revenue targets.
“This is an all-cash deal and the total consideration will consist of initial pay out of $11 million and a performance-related earning capped at $3 million (Sh305 million) for achieving an EBITDA of $2.95 million (Sh300 million) for 2015,” said Strides Shasun in a statement.
EBITDA stands for earnings before income tax, depreciation and amortisation.
The majority stake purchase is meant to give Strides Shasun access to the multi-billion shilling regional drugs market.
“The acquisition will help strengthen Strides Shasun’s business prospects in East Africa and offer additional capacity to support future growth in this region.
The acquisition is in line with the company’s focus of creating a leading branded generics platform in Africa under the company’s strategy of ‘In Africa, For Africa’,” said Strides Shasun emerging markets chief executive Sinhue Noronha.
The Bangalore-based Pharma will also have a foothold in UCL’s other markets that include Zambia, Zimbabwe, Malawi, Namibia, Ivory Coast and Sierra Leone.
UCL, founded in 1996, is a major manufacturer of generics and is one of a few African pharmaceuticals to have one of its drugs certified by the World Health Organisation (WHO).
Reduced marketing costs
In October 2011 UCL’s Lamozid, an anti-retroviral drug, was pre-qualified by the WHO giving the firm a break into the lucrative anti-retroviral drugs export market.
A 2015 report by McKinsey says that the generic market in major African economies has been growing in double digit rates in since 2004.
“In many African countries, generic drugs are gaining market share at the expense of over-the counter and branded products.
In South Africa, Egypt, Algeria, Morocco, Nigeria, and Kenya, generics grew at an average CAGR (compounded annual growth rate) of 22.3 per cent between 2004 and 2011, considerably faster than the 13.4 per cent for pharmaceuticals as a whole,” said the report.
Players in the pharmaceutical industry say that the acquisition bodes well for local manufacturers since it will lead to reduced marketing costs and knowledge transfer.
“We have well known branded generic manufacturers in Kenya that are having a hard time competing amidst themselves and more with the imports. So, yes it makes sense for both local mergers and outsider (merger) to boost capital, technology, knowledge transfer and sharing.
The outsiders have really efficient technology,” Haltons Pharmacy founder and executive director Louis Machogu told the Business Daily.
Strides Shasun has already said that it will transfer several products and offer technical assistance to UCL.