Looking at Promopharm’s historic sales development, which has been much slower than the Moroccan market as a whole, we get the impression that the company has been somewhat dozy in the past. Hikma clearly thinks so too, as it plans to increase the size of the sales force and believes that it can get Promopharm growing faster than the market as a whole even before it launches any of its own products (which in any case are likely to take 2+ years to get approved). Hikma predicts that Promopharm will show double-digit sales and EBITDA growth this year and that it will maintain this in future years. It also anticipates the acquisition being earnings-accretive pretty much immediately (funding is via a syndicated loan facility carrying an interest rate of LIBOR +2%).
Overall, there is little to find fault with in this transaction. Investors buy Hikma stock mainly because of its MENA exposure, so this is exactly the sort of deal that they should expect it to do. Hikma also has a good track record of integrating acquisitions and boosting growth, so there is no reason to believe that it won’t be able to achieve the same trick with Promopharm. Moreover, Hikma has repeatedly said that it intended to buy companies in MENA, with the only restriction being the reluctance of most owners to sell. According to the CEO of Hikma, Said Darwazah, the next target will be Turkey, which is obviously attractive due to its size, but is a very different market to those in which Hikma operates at present. Finding something to buy in Turkey at a reasonable price is likely to be a challenge, but by the sound of it, Hikma already has a target in its sights.
Posted on 5th October 2011