ICICI Venture closes in on US buy

 ICICI Venture-controlled RFCL (formerly Ranbaxy Fine Chemicals) has emerged as a strong contender to buy the speciality chemicals business of Mallinckrodt Baker, a division of healthcare giant Covidien, in a deal which could be valued at around $450 million, industry sources said. The transaction is in the final stages of due diligence and could be finalised in about two weeks.

This comes after speculation that RFCL was on the trail of a large US acquisition. If the transaction goes through it will be the biggest overseas M&A play for ICICI Ventures, which acquired RFCL around four years ago from Ranbaxy Labs for Rs 125 crore. A business TV channel had earlier reported that the deal was in the works.

The international deal is over four times RFCL’s current size. The transaction could make the Indian company a critical player in the consolidating global fine chemicals industry, especially in the laboratory products space. RFCL has three divisions â€" animal healthcare, fine chemicals and the diagnostics business.

“I am unable to confirm anything now,” ICICI Ventures MD Renuka Ramnath said. Another official with India’s largest domestic private equity fund said Mallinckrodt Baker was one of the targets on RFCL’s radar. In February this year, the $10-billion Covidien, formerly Tyco Healthcare, unveiled plans to divest its speciality chemicals business in a bid to stay focused on medical devices and imaging solutions. Commenting on Covidien’s divestment plans, analysts said Mallinckrodt Baker was an attractive fine chemicals business with “a steady operating margin and limited ongoing investment requirement”.

Mallinckrodt Baker Chemicals, which reported annualised revenue of $422 million in FY07, has ove r 2,000 employees with four plants in the US, the Netherlands, Mexico and Malaysia. It supplies chemicals for laboratory research, microelectronics devices, pharmaceuticals and biotechnology therapeutics.

Incidentally, in 2003, RFCL and Mallinckrodt Baker had entered into a marketing alliance for scientific laboratory products in the Indian market. It is believed that RFCL has been chasing a few acquisition targets in the US, with YES Bank roped in as an advisor for potential transactions. Speculation in recent weeks also linked it to another smaller entity, AIM Fine Chemicals, which is controlled by private equity fund Jina Capital. However, ICICI Venture had distanced itself from the rumour.

The timing of RFCL’s big-ticket buyout is not lost on industry observers. “With already four years behind it, ICICI Ventures is now pushing for global scale in a sector with few Goliaths. That may be the best bet for a blockbuster exit,” an analyst, who did not wish to be named, said.

However, what exit mode ICICI Ventures might take from a unique sector like fine chemicals is not very clear, he added. A slowdown in manufacturing â€" speciality chemical companies supply high value-added chemicals used in the manufacture of a wide variety of products â€" might be a concern for the private equity fund.

RFCL has strung up a slew of small acquisitions last year, starting with the buyout of Wipro BioMed, Godrej Diagnostics, and Alved Pharma & Foods in veterinary healthcare.

 

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