Case Study

The European client had limited success in marketing their high-end pharmaceutical machinery in India through agents supported by a small technical support office.

The realisation that growth in the high-end segment in one of the world’s largest pharma manufacturing markets faced insurmountable barriers led to the decision to either set up a greenfield manufacturing facility or to seek a suitable acquisition target.

GBP International, with its track record in India, was called in to find best-fit acquisition candidates based on a set of pre-defined criteria. Anonymity and confidentiality raised the level of complexity immediately. GBP International’s team based in India and headed by a partner in Malaysia set about establishing a long-list of pharma-machinery manufacturers in India. The result was a list of over 100 companies. By applying filtering techniques based on product portfolios, a first shortlist of 20 companies was established.

Some of the main questions to be answered were then:

• Is there a strategic fit?
• Who are the managers and shareholders?
• What is the reputation and market share in India?
• Who are the main customers in India and abroad?
• What is the condition and level of technology in the manufacturing park?
• What is the 3-year financial history and current financial status?
• Would the shareholders be open to a discussion on a majority takeover by our client?

The notoriously inaccurate and out-dated publicly available data in India required GBP International to employ deep background research and carefully designed interviews with market insiders. Early on in the investigation, it became apparent that many of the shortlisted companies were either linked directly or indirectly through cross-shareholdings to each other or to large Indian pharma companies. The shareholders were in many cases a large number of family members. In some cases, an attempt to hide direct linkages was achieved through shareholdings of the wives of shareholders of seemingly competing companies. This led to an in-depth analysis of the fixed assets of each company, and GBP International established that many used sub-contracting to related companies to give the impression of a full-scale production capacity.

Painstaking research, going beyond the obvious, resulted in an analytical report in which GBP International recommended two Indian companies as acquisition targets to the client. The next phases of the assignment were the development of the right approach to the owners/shareholders and subsequent due diligence.