The betapharm Acquisition: DRL's Inorganic Growth Strategy in Europe

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Case Details:

Case Code : BSTR249
Case Length : 19 Pages
Period : 2002 - 2006
Pub Date : 2007
Teaching Note : Available
Organization : Dr. Reddy's Laboratories Ltd.
Industry : Pharmaceutical
Countries : Germany, Europe, India

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DRL's Acquisition of betapharm

A Gateway to the Second-Largest Generic Market

When 3i put betapharm up for sale in 2005, it attracted the interest of several major pharmaceutical companies around the world, including the world's biggest generic drugs manufacturer, Teva Pharmaceutical Industries Limited. Several reasons were attributed for this interest. The most important factors were betapharm's strong marketing infrastructure and instant access to the German generic market, which many experts believed was very difficult to develop through organic growth. The good value offered by betapharm played a major part in attracting potential buyers. Schuler said on the attractiveness of betapharm to potential buyers, "We have substantially built value by complementing many of business functions such as procurement, finance, and controlling and business development.

All that has led to an independent company with a unique positioning representing a clear gateway to German market, which is the second-largest generics market in the world. This has really sparked a lot of trade interest from the players all around the world, particularly from India..."

Benefits of the Acquisition

The main benefit to DRL from the acquisition was getting an immediate presence in the German generic market and the scope of leveraging this presence to expand in the European market.

Analysts said that DRL acquired this presence without any major liabilities as betapharm was considered a profitable company that was consistently growing at a healthy rate and had a well-planned future products introduction program. Satish Reddy, MD and COO of DRL, explained, "We looked at its turnover and profitability. betapharm has 3.5 per cent market share in Germany; as many as 370 employees, of which there is a strong sales field force of 200; and 145 brands, with a clear launch calendar until 2009. If we had to do all this from scratch, the cost would be prohibitively high... The acquisition was a market entry strategy for us." Niedermaier said that the betapharm acquisition was in line with DRL's ambitious global plans.

He said, "Our business was ideally designed for the German market with its peculiarities, whether it is the healthcare system, product distribution, or communication design. This is our strength. The charm of this combination is that Dr. Reddy's did not have a presence in Germany... Despite its population shrinking, the German healthcare market remains an important one...

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