Reckitt to Buy India’s Paras Pharma for $724 Million

Reckitt Benckiser CEO Bart Becht
Paras meets Chief Executive Officer Bart Becht’s aim of expanding in health and personal care to help buffer slower-growth in sales of household cleaners. Photographer: Chris Ratcliffe/Bloomberg

Reckitt Benckiser Group Plc, the maker of Lysol cleaners and Nurofen painkillers, agreed to buy India’s Paras Pharmaceuticals Ltd. for about 32.6 billion rupees ($724 million), extending its push into consumer healthcare.

Reckitt Benckiser will acquire a 63 percent stake in Paras from Actis LLP, the companies said in a statement today. Sequoia Capital and the remaining Paras shareholders, including the company’s founder Girish Patel and his family, will also sell their shares to the Slough, England-based company.

Paras, based in Ahmedabad in the western Indian state of Gujarat, meets Chief Executive Officer Bart Becht’s aim of expanding in health and personal care to help buffer slower- growth in sales of household cleaners. Reckitt Benckiser this year agreed to buy U.K. condom maker SSL International Plc for 2.54 billion pounds ($4 billion). Paras, the maker of Moov pain relief ointment, has annual sales of about 4 billion rupees.

“All the boxes are ticked,” Marco Gulpers, an analyst at ING in Amsterdam, said by phone. “Acquiring the number 1 brand in analgesics sounds like a smart move, the structure means they gain full control, the brands are pretty strong and it’s in line with previous strategy.”

Reckitt Benckiser rose 52 pence, or 1.5 percent, to 3,561 pence at 9:02 a.m. in London trading, the day’s highest price. The stock has climbed 6.1 percent this year.

‘A Little High’

The maker of Veet hair remover is paying 8.1 times sales, according to Bloomberg calculations, or 30 times operating earnings before interest, taxes, depreciation and amortization.

“The initial price reads a little high, but this is an emerging market where growth is substantially higher,” Gulpers said. The industry standard is around 4 times sales, he said.

SSL was acquired for the equivalent of 3.1 times sales or 18 times earnings before interest, taxes, depreciation and amortization. That was Reckitt’s first major purchase since the $2.3 billion takeover of Adams Respiratory Therapeutics in 2008.

Developing markets, which include India, Latin America, Africa, Middle East and Asia, account for about a fifth of Reckitt’s revenue. That trails Unilever’s Asia and Africa division and Procter & Gamble Co.’s developing markets, Latin America and northeast Asia units, which both account for 37 percent of group sales.

‘Not A Big Deal’

“This is not a big deal, but following on from the SSL acquisition we believe marks a fundamental shift in the Reckitt investment case,” James Edwardes-Jones, an analyst at Execution Noble, said in a research report. “It’s a slower growth business dependent on acquisitions which, so far, don’t appear especially value accretive.” He has a “sell” rating.

Paras makes BoroSoft moisturizing skin cream and Zatak deodorant. Other brands include D’Cold, the flu remedy, Dermicol for prickly heat, Krack, a cracked heel treatment, Itch Guard anti-fungal cream, and Set Wet, a hair gel and deodorant brand.

Actis stands to make more than a threefold gain on its 2006 investment in Paras, based on a purchase price of $145 million disclosed in an Aug. 3 e-mail.

The London-based private-equity firm has $4.7 billion of funds under management, according to today’s statement. It will continue to pursue investments in India’s consumer-products and manufacturing industry, and financial and business services, said J.M. Trivedi, an Actis partner and head of South Asia.

About $1 billion has been earmarked for India of which more than half has already been committed, Trivedi said in an interview. There will be equal focus on buyouts and taking minority stakes, he said.

Reckitt, which will fund the deal from existing facilities, was advised by JPMorgan Chase & Co. Actis and the other Paras shareholders were advised by Morgan Stanley.

(Corrects to remove erroneous market ranking in first paragraph.)
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