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Thyrocare & PharmEasy get hitched: What’s in store for investors?


Health-Tech is consolidating at a fast pace & everyone wants a piece of the pie. Tata Digital acquired 60% stake in 1MG for $270 Mn. Reliance acquired 60% stake in Netmeds for $85 Mn.

And now, PharmEasy buys the promoter stake in Thyrocare, one of India’s largest diagnostic chain. What are the benefits that will accrue on the back of this merger?  What is in it for Thyrocare shareholders?

The Acquirer – PharmEasy

PharmEasy was founded in 2014 by Dhaval Shah & Dharmil Sheth. The company had generated 637 Cr in revenues & a loss of 100.7 Cr for FY20. In May 2021, the company had acquired Medlife for $250 Mn to become India’s largest e-pharmacy player with ~60% market share.

The company has a customer base of 17 Mn serving across 16,000 zip codes in India. It connects over  70,000 brick and mortar pharmacies & 4,000 doctors via its platform. On 2 June 2021, B Capital had picked up a minority stake in PharmEasy valuing the company at $1.8B.

Thyrocare & PharmEasy get hitched: What's in store for investors?

The Acquiree – Thyrocare

Thyrocare Technologies was founded by A. Velumani in 1996. It has around 3300 collection centres & has Centralized Processing Laboratory in Mumbai. It conducts over 110 Mn tests annually. The company had grew its revenue by at 15% CAGR in the last 5Y to 495 Cr & generates a PAT of 112 Cr as of FY21.

In 2016, the company had came up with an IPO, mainly to provide the exit for its PE investors. Promoter Velumani & family currently owns 66.1% of the company. FIIs own 20.54% & the remaining is with DIIs & retail.

Click on the years below to see Thyrocare’s progression over time

The Deal

  • API Holdings is the parent company of PharmEasy. API Holdings has another 100% subsidiary called Docon Technologies.
  • Docon Technologies will be buying the entire promoter stake of Thyrocare (66.1%) at 1300/- per share. A deal of 4546 Cr & valuing the company at 6800 Cr.
  • Docon & API Holdings had announced an Open offer (Triggered offer) to acquire further 26% stake from other shareholders of Thyrocare.
  • This is a mandatory open offer under SEBI guidelines. The offer is made at 1300/- per share aggregating upto 1788.1 Cr. This offer is NOT subjected to any minimum level of acceptance. Meaning, the 66.1% promoter stake sale will happen irrespective of the success of open offer.
  • Mr. Velumani will invest 1500 Cr for a 4.9% stake in API Holdings.
  • Post Thyrocare deal, PharmEasy parent (API Holdings) is valued at $4B.

What’s in for both the parties?

This is huge leap for PharmEasy in the right direction. A unicorn acquiring a strong brand & profit making listed company is first of its kind in India.

PharmEasy is looking to become a one stop solution for all health care needs like Consultation, Medicines, Diagnostic tests etc. The management says ‘Funding Secured‘ for the deal backed by Temasek, TPG, Naspers, B Capital, Kotak PE etc.

On the other side of the story, Thyrocare is facing succession problems. Mr. Velumani’s children have no intention to run the business after him. The promoter tried to bring in professional management as CEO, but he resigned within months stating personal reasons. In all probability Mr. Velumani is looking for an exit & he got a decent one.

What’s next for Thyrocare?

The regulatory process will take around 6-10 weeks to complete.

Post the open offer, Docon & API will hold anywhere between 66.11% to 92.11% stake in Thyrocare. Depending on the offer acceptance, we can expect the following scenarios to play out:

Scenario 1: New promoter stake >75%.

  • As Indian promoters can’t hold more than 75% of the company, Docon & API may have to sell their holding & bring it back to 75%.

Scenario 2: New promoter stake <75%.

  • Thyrocare will continue to be listed player. Business as usual for investors.

Scenario 3: Delisting

  • They can at any point of time choose to delist the company via reverse book building, to get a holding of 90%+. The management of API Holdings, however mentioned that Thyrocare will continue to be a listed entity.

Scenario 4: Reverse Merger

  • PharmEasy may use Thyrocare as a vehicle to get listed. They have an option to reverse merge PharmEasy into Thyrocare. It is an easy & less expensive route to get listed. However, this is a less likely option though.

What should Thyrocare investors do?

Stay put for now.

Thyrocare is moving from the hands of a passionate founder to a fast growing Health tech startup. It will leverage on the PharmEasy’s brand & technology to reach the next leg of growth.

Thyrocare stock had a knee jerk reaction as the deal happened at 10.4% discount to the 25-June-2021 closing price. However, Long-term growth momentum remains same. Further clarity will emerge post the open offer.

Thyrocare & PharmEasy get hitched: What's in store for investors?

This article is for information only, and should not be considered as a recommendation to buy or sell any stocks.

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Thyrocare & PharmEasy get hitched: What's in store for investors?


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