Story of the deal: NeutraHealth plc bought by Indian pharma company

Wednesday, January 26, 2011 | Posted by: Fiona Cullinan
Categories: India | Tags: M&A, due diligence, corporate finance, cross-border, Story of the Deal, buying a business, subsidiary, buyout, acquisition, Elder Pharmaceuticals, NeutraHealth

What happens when a fast-expanding firm from India seeks the buyout of a UK plc? The second of our case studies lifts the veil on a cross-border acquisition and takes us to India, Dubai and on to the intricate landscape of UK regulation. Our Capital Markets team reports.

1. What’s the story?
Fast-growing companies in emerging markets are increasingly seeking to increase their footprint in more developed markets here in the UK and Europe. In this particular case, Mumbai-based Elder Pharmaceuticals Ltd, which already owned 21.1% of NeutraHealth plc, wanted to acquire the remaining shares.

2. Who were the main players?
Elder is one of the leading pharmaceutical companies in India. With its headquarters in Mumbai, it both markets and manufactures a range of pharmaceutical products and ingredients.

NeutraHealth is one of the largest vitamin and supplement suppliers in the UK market and has a large distribution network across the country, which serves healthcare practitioners, independent retailers, multiple retailers and customers directly. It was listed on AIM prior to this acquisition.

3. What was the reason for the buyout?
As with many M&A transactions, there were a number of reasons behind Elder’s desire to acquire NeutraHealth.

Broadly speaking, the directors felt that the acquisition would assist them in entering into new European markets. Backward integration of products manufactured by NeutraHealth would also reduce costs over the long term. Elder would also gain access to NeutraHealth’s large distribution network, allowing it to increase the circulation of some of its more niche products across the UK.

4. How was Grant Thornton involved?
The past few years have seen an increasing number of cross-border deals involving our member firm, Grant Thornton India, and our South Asia Group in the UK office.

On this transaction, our Capital Markets team acted as financial adviser to Elder, project managing the deal from start to finish. As the transaction fell under the scope of the City Code on Takeovers and Mergers, we also advised on the technical aspects of the City Code, as well as bid execution and other corporate advisory aspects.

The Grant Thornton UK South Asia group tax team also provided tax due diligence services to support Grant Thornton India, which was engaged to provide due diligence to Elder. 

5. What stages are typically involved in an acquisition? And, specifically, what is involved when acquiring a plc under the City Code?
Typically, an acquisition involves identifying a suitable target company that fits the acquiring company’s acquisition criteria. Once a suitable company has been identified, we work with clients to develop an appropriate strategy to ensure that the transaction is executed successfully.

This normally involves:

• advising on suitable sources of funding for the acquisition
• assisting in preparing an appropriate business plan to approach funders
• devising appropriate offer conditions before approaching the board of the target company
• testing shareholder appetite for the transaction
• liaising with the relevant regulatory authorities such as the Takeover Panel
• conducting financial due diligence
• assisting in negotiations with the target company
• advising on the offer documentation in relation to the transaction.

Once a transaction has completed, we then provide post-acquisition implementation services, advising clients on how best to achieve their M&A objectives. And for acquisitive clients, we continue to look out for suitable targets that may fit their acquisition criteria.

6. Were there any particular challenges in this case?
The main challenge here was to execute the deal within a very tight timeframe (due to exclusivity period restrictions). Under the City Code, we were also required to provide a public confirmation that the funds were available to satisfy the offer consideration that would be due to the shareholders.

Given that this was a cross-border transaction involving India as well as the UAE (which is where Elder’s subsidiary company making the offer was based), we had to ensure that all the relevant funding documentation was in place to our satisfaction, and that the offer documentation was ready to be sent to the shareholders prior to formally announcing the transaction.

The number of public holidays in India and the UAE that happened to take place during the course of the transaction added to the timetabling challenges!

7. What was the end result of the deal?
The transaction was successfully completed in November 2010 and NeutraHealth became a wholly owned subsidiary of Elder.

8. What advice do you have for emerging market or international companies looking to acquire companies in the UK?
Engage experienced advisers at the outset – they will help you avoid the pitfalls of M&A, as well as navigating the regulatory landscape in the UK.

Make sure they have a good relationship with and experience in dealing with regulatory bodies such as the Takeover Panel, the London Stock Exchange and the Financial Services Authority, as this will help to identify and deal with any issues that arise in the transaction process.

9. Where can they get help and advice?
Please do get in touch with the people below if you need more specific advice. We would be delighted to speak to anyone looking for advice on similar transactions.

Our Capital Markets team can help you in originating, evaluating and executing M&A transactions across a range of sectors. Clients can also plug into other Grant Thornton services from financial due diligence, tax and pension advice to a range of advisory services – useful for when an integrated solution is needed.

We have significant experience in advising companies on cross-border as well as UK-based transactions and would be more than happy to assist anyone looking for guidance and advice on such matters.

If you would like to find out more about this transaction, our Capital Markets services or the South Asia Group, please contact Fiona Owen on fiona.owen@uk.gt.com, Salmaan Khawaja on Salmaan.A.Khawaja@uk.gt.com or Alex Wright on Alex.Wright@uk.gt.com.

Alternatively, read more about our other services on the Capital Markets page – the team has years of experience in advising public companies on a range of corporate matters including public company takeover advice, grooming for flotation and advising companies undertaking an IPO on AIM or the Main Market of the London Stock Exchange. We are one of the leading independent nominated advisers on AIM and have a long history of advising companies on M&A transactions.

Image: © SuperFantastic

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