A wave of international investment has swept through Latin America during 2014 in the form of mergers and acquisitions involving several small and medium-sized regional companies by international pharma companies.
IHS Life Sciences perspective | |
Significance | Latin America has experienced a surge of international investment this year. |
Implications | Mergers and acquisitions activity remains strong registering 14% year-on-year growth in transactions in the third quarter. |
Outlook | The Latin American pharmaceutical market has attracted international investment due to the fast-growing opportunities in the region as a business alternative to slow growth in Europe and the United States. However, the region involves some risk and downsides. |
Mergers and acquisitions (M&A) activity remains strong in Latin America registering 14% year-on-year (y/y) growth in third-quarter (Q3) transactions, reports Mexican business newspaper El Economista based on a study by Transactional Track Record (TTR). According to the source, 473 multinational transactions were recorded between July and September, against 414 recorded in the same period last year. According to TTR, Mexico showed the greatest growth in M&As in the region, up 45.3% y/y. In terms of volume of investment, there was also a general increase in all Latin American countries, mainly due to the completion of relevant transactions between international pharmaceutical companies that announced offers to acquire small and medium-sized Latin American companies.
M&As trend
A strong wave of international investment has swept through the region during 2014. The first M&A activity of the year was between German drug company Grünenthal and Chile's Laboratorios Andrómaco after the former successfully acquired 81.59% of the latter's shares in January. This acquisition was an important milestone in Grünenthal's growth strategy in the Latin American region, propelling it from being a mid-size company, to one of the top four players in the Chilean market (see Germany - Chile: 3 January 2014: Grünenthal finalises Andrómaco acquisition).
In May, United Kingdom-based pharmaceutical retailer and wholesaler Alliance Boots signed an agreement to acquire Chilean company Farmacias Ahumada (FASA). The FASA business includes two core businesses, Farmacias Benavides, a Mexican retail pharmacy chain, and Farmacias Ahumada, a retail pharmacy chain in Chile. The acquisition process finalised in August and Boots now controls FASA's distribution network of 1,400 stores in Chile and Mexico with combined revenues of around USD1.4 billion (see United Kingdom - Mexico - Chile: 7 May 2014: Alliance Boots acquires Chilean and Mexican pharmacy chains and United Kingdom - Mexico - Chile: 12 August 2014: Alliance Boots finalises acquisition of Ahumada and Benavides).
The last big acquisition announced at the beginning of the year and finalised in the third quarter was the US' Abbott Laboratories' acquisition of the Chile's CFR Pharmaceuticals SA. in a deal worth USD2.9 billion. After several requirements and internal approvals by the Chilean competition authority, Abbot acquired and assumed CFR's net debt of approximately USD430 million. This acquisition will double its branded generics pharmaceutical presence in Chile and will establish the company among the top 10 pharmaceutical companies in Latin America (see United States - Chile: 19 May 2014: Abbott to acquire Chile's CFR Pharmaceuticals in USD2.9-bil. Deal; United States - Chile: 9 September 2014: Chilean Free Competition Defence Tribunal approves Abbott-CFR merger with some conditions; and United States - Chile: 29 September 2014: Abbott completes acquisition of Chile's CFR Pharma in USD2.9-bil. deal).
Outlook and implications
The Latin American pharmaceutical market has been attracting international investment due to the opportunities for fast growth in the region as a business alternative to slow growth in Europe and the United States. The region's pharmaceutical market has rapidly grown during the last three years, with an estimated USD70 billion in sales in 2013.
Although the market offers advantages for multinational pharmaceutical companies, such as cheaper cost of production and distribution and the growing middle class that seeks access to innovative treatments, the region has some inherent risks and downsides that international pharmaceutical companies must bear in mind, such as the strong policy of boosting local production of generics and the internal regulation of controlling the prices of high-cost medicines. These are political healthcare measures that could hamper international companies' growth prospects.
The trend of merger and acquisitions between international pharmaceutical companies and regional companies is likely to continue into the fourth quarter as some big companies have already shown intentions to acquire business in Latin America, such as the US' leading drug retailer Walgreens which is in acquisition negotiations with Brazilian pharmacy chain BR Pharma as well as considering laboratory acquisitions in Colombia (see Brazil: 15 October 2014: US retailing chain Walgreens seeks to buy into Brazil's BR Pharma).