Good Friday Morning Dear MMS Reader,
The rising tide of crazy valuations has lifted many boats, but it has also crashed some well-laid acquisition plans. PharmEasy buying listed diagnostics chain Thyrocare last month added a zing to each other’s valuation. But it sunk fellow diagnostics chain Metropolis’ plan of closing its Rs 617 crore ($83 million) deal with Chennai’s Hitech Diagnostics. Hitech ghosted Metropolis, forcing the latter to intimate the stock exchange that the deal was all but over.
Covid has triggered a consolidation race in diagnostics. Dominated by unorganised players, only 20% of this industry is organised. Of this, large chains corner 15%. It’s the remaining 5%, run by regional players, that larger chains are now wooing.
In April, when PharmEasy turned a unicorn and went on a buying tear, it approached all potential sellers, including Hitech. Did it sow a seed of doubt then? Because PharmEasy bought Thyrocare at ~40X EV/Ebidta but Metropolis, a strategic buyer, had valued Hitech at ~18X.
The two assets are not the same, nor is the benchmark set by the PE-backed PharmEasy-Thyrocare deal the right one for the sector. Yet, it seems to have introduced market distortions that could affect deals in the short-to-medium term.
Suburban Diagnostics’ is surely one of those. The Sequoia-backed company needs to give an exit to its investors and is engaged in stake-sale talks with potentially all the large chains. And, of course, with PharmEasy. The e-pharmacy company won’t rest with just Thyrocare, which is largely B2B. With Temasek and TPG Growth among just two of its multiple large investors, PharmEasy is like a bull in a china shop, disrupting more than valuation benchmarks in diagnostics.
“PharmEasy is on steroids, running on private equity money. If you walk by their office, they might even offer to buy you,” says our medical analyst. Will it scoop up Suburban from under everyone’s nose? Mumbai Multimedia Studio should have an interesting story on why stodgy diagnostics is suddenly sexy nowadays... #yusufbhandarkar #digitalmarketing #diagnose www.multimediastudio.net
