In Pharmeasy’s acquisition of Thyrocare, two plus two equals five
Premium- PharmEasy is raising capital at higher valuations on the back of the deal announcement, which will help fund the acquisition
About two weeks ago, PharmEasy was valued at $1.8 billion in a small secondary transaction. Two months earlier, it was valued at $1.5 billion in a larger primary fundraising transaction.
Now, suddenly, in a new funding round, the firm has been valued at $4.1 billion (Rs30,600 crore).
Of course, it has made the bold move of acquiring a majority stake in listed diagnostics firm Thyrocare Technologies Ltd for $612 million. But PharmEasy’s own valuation of $1.8 billion plus the value of its stake in Thyrocare adds up to around $2.4 billion.
Evidently, investors seem to see a far greater opportunity for the firm post the acquisition. So much so that the value of the synergies and the greater opportunities seem to be valued nearly as much as PharmEasy’s entire value before the acquisition.
"The acquisition of Thyrocare by PharmEasy puts it into a different league than its traditional diagnostic peers. Companies have realised that online is the way forward and value lies in creating an integrated ecosystem by bringing doctors, diagnostic labs and pharmacies to patients and insurance companies to enable an end-to-end customer journey. This, we believe, opens the window for a higher valuation framework," said analysts at Edelweiss Securities Ltd.
But this higher valuation framework is unlikely to get reflected in Thyrocare shares, as much as in the private market, which follows a vastly different logic. And PharmEasy is using it to its advantage. It is raising capital at higher valuations on the back of the deal announcement, which will help fund the acquisition. Of course, Thyrocare minority investors may not be able to participate in this seemingly high value creation as a result of the combine.
The diagnostics firm has been valued at Rs1,300 per share, roughly double its pre-covid highs. This isn’t very different from the rise in the shares of Dr Path Labs post covid. PharmEasy’s mandatory open offer is at a price of Rs1,300, which is lower than the current market price, and has caused an 8% correction in Thyrocare shares. Any eventual merger of the two firms is also likely to value PharmEasy far higher than the listed entity.
Of course, there is little to complain about for shareholders of Thyrocare, with the shares more than doubling in the past year and the deal valuing the firm at 46 times one year forward earnings.
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