Japanese medical technology major ARKRAY Group is buying the In-Vitro Diagnostic (IVD) business of Gujarat-based Span Diagnostics Ltd (Span), as per a stock market disclosure. The equity value of the deal is around Rs 73.4 crore ($12 million) while the enterprise value is pegged at around Rs 100 crore ($16 million).
Span, a public listed manufacturer of diagnostic products and a major supplier of HIV test kits for the National AIDS Control Programme, has approved the sale of the IVD business undertaking to ARKRAY Healthcare Pvt Ltd, the Indian arm of ARKRAY Inc, it disclosed on Thursday. As per the agreement, two members of the promoter group, Pradip K Desai and Sujata V Desai, will join Arkray Healthcare. The existing chief of Span would continue to lead the organisation, with its remaining business.
“We welcome this transaction as it provides our customers, suppliers, employees and other stakeholders an opportunity to leverage upon the additional technical, financial and marketing strengths of ARKRAY Healthcare, while unlocking significant shareholder value,” said Pradip Desai, founder chairman and whole-time director of Span Diagnostics.
The firm had consolidated revenues of Rs 81.5 crore for the year ended March 31, 2013, with net profit of just around Rs 31 lakh. The IVD business contributed around Rs 70 crore of this and accounted for over 85 per cent of its revenues.
The deal allows the Japanese firm to avoid a mandatory open offer, which would have been triggered if it had acquired the company instead of the core business. Many such transactions have been sewn in the past in the case of inbound M&A transactions.
Span’s scrip hit the upper circuit for the day rising 5 per cent ahead of its deal announcement on Thursday. The whole company has a market cap of Rs 21 crore.
The deal will position ARKRAY Healthcare as the leader in the Indian IVD market, which is growing 15 per cent annually and is expected to keep the pace for at least another five years. The IVD reagent market size is pegged at Rs 700 crore and the IVD instruments market size is worth Rs 1,400 crore.
"This strategic action will advance ARKRAY Healthcare into the leading position in India, one of the world’s most rapidly growing markets with potential for further expansion," said Takeshi Matsuda, president and CEO, ARKRAY Inc.
"Our strong position in Japan and growing presence in emerging markets is part of our ongoing diversification and expansion strategy, complementing our state-of-the-art offerings in developed markets. At the completion of this transaction, ARKRAY Healthcare will have an enhanced product portfolio as well as sales channel and domain skills, which will strengthen our market position,” he added. The deal, subject to certain undisclosed conditions, is expected to close within four months.
Singhi Advisors was the financial advisor to Span while Mizuho Securities advised ARKRAY for the transaction. Wadia Ghandy & Co was the legal advisor to Span and Vaish Associates Advocates to the Japanese group.
“What is most interesting about the deal is that it will unlock the potential of India’s medical devices sector in general and booming IVD industry in particular. IVD market is currently worth Rs 2,000 crore and just under 3 per cent of the healthcare market, but offers greater space for growth,” said Mahesh Singhi, managing director of Singhi Advisors.
Span was founded in 1972 as the first Indian company to manufacture a comprehensive range of IVD products with in-house R&D operations. Of the 50,000-odd clinical laboratories in India, more than 90 per cent use one or the other reagents manufactured by the firm.
Kyoto-based ARKRAY, one of Japan’s leading companies in the area of in-vitro diagnostics, is engaged in research, development, manufacture, service and distribution of IVD products. ARKRAY Inc is one of the world’s leading companies manufacturing glycohemoglobin A1c test device, automatic analyser for urine testing, blood glucose device for self monitoring and other wide ranged product lines and supplying them to over 80 countries worldwide.
(Edited by Joby Puthuparampil Johnson)