Medlife-PharmEasy merger awaits CCI approval

Medlife has formally made its filing at the Competition Commission of India (CCI) to merge with Temasek-backed PharmEasy. Both companies were in advanced talks for a potential transaction for the past few months. If CCI gives a nod for the transaction, it would be going to be the first major consolidation in the e-commerce space this year.

Medlife would get a 19.59% stake in the combined entity.

“The proposed combination relates to the acquisition of 100% equity shares of Medlife by API Holdings (PharmEasy), and as consideration, the acquisition of up to 19.59% of the equity share capital of API Holding on a fully diluted basis, by the Medlife promoter and its other shareholders,” the CCI filing said. 

While the valuation of the combined entity has not been disclosed yet, an ET report pegs the deal to be valued at around $235 million (Rs 1,750 crore) based on the $1.2 billion enterprise valuation of the combined entity. According to a valuation report filed by Medlife dated 31 January 2020, it was valued at $375 million (Rs 2,678.1 crore), indicating a discount of around 37.3% or $140 million in its valuation. 

If there is no other consideration involved, this seems to be a stress deal for Medlife which had projected erosion of net worth up to negative Rs 157.7 crore by the end of FY20.

The talks of the merger have been on for the past couple of months because of the strong interest of two heavyweights - Reliance and Amazon - in this space. While the Mukesh Ambani-led group is in its last leg to acquire Netmeds in a deal worth $80-100 million, Amazon launched its pharmacy vertical recently. 

Entrackr had exclusively reported Amazon’s entry into the pharmacy segment.

Medlife has been making capital structure adjustments to ease the process of the merger. On Tuesday, we reported the conversion of Rs 172 crore worth Prasid Uno Family Trust’s debt in Medlife into equity shares.

The Patna-based company claims to have processed 19,000 orders per day during the year ended in March 2019, offering a range of more than 50,000 SKUs across 22,000 pin codes in India. 

Since its incorporation in 2014, Medlife raised multiple debt rounds from its largest investor - Prasid Uno Trust and promoters. The company was in talks to raise around $50 million from external investors. However, the conversations didn’t culminate in a transaction.

The five-year-old PharmEasy, which connects patients with pharmacy stores, had last raised a mega-round worth $220 million in November 2019 at an estimated valuation of $700 million. 

The consolidation has been on the cards because of the imminent entry of deep-pocketed Reliance and the launch of Amazon’s online pharmacy. Chances of raising large independent rounds would have been tough for Medlife, PharmEasy, and 1mg. This merger then would allow the combined entity to fight rivals more aggressively.