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Perrigo (PRGO) to Acquire Another Self-Care Company HRA Pharma

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Perrigo Company plc (PRGO - Free Report) announced that it has entered into a binding offer to acquire France-based leading global consumer self-care company, Héra SAS (“HRA Pharma") for €1.8 billion (approximately $2.1 billion) in cash.

Currently, HRA Pharma is owned by funds affiliated with private equity firms, Astorg and Goldman Sachs Asset Management.

The acquisition of HRA Pharma will add a portfolio of market-leading, high-growth over-the-counter (OTC) self-care brands to the already robust self-care portfolio of Perrigo. HRA Pharma’s OTC portfolio includes popular brands like Compeed in blister care, ellaOne in women's health, and Mederma in scar care. Moreover, the acquisition will also add three leading prescription drugs for rare diseases.

The acquisition is expected to be completed in the first half of 2022, subject to customary closing conditions. The transaction will also complete Perrigo’s three-year transformation plan to become a global leader in consumer self-care.

Net sales of HRA Pharma’s products are estimated to grow in the mid-teen percentage range in the near-term. The adjusted operating margin is expected to be nearly 30%.

The acquisition of HRA Pharma is anticipated to generate significant and actionable operational synergies, primarily driven by an overlap of businesses in existing geographies. Perrigo will likely generate more than €30 million in annual savings by unlocking synergies. The acquisition of HRA Pharma is expected to bring additional net sales of approximately €400 million in fiscal year 2023. It is estimated to boost adjusted earnings per share (EPS) by $1.00 in the same period.

Following the completion of the acquisition, Perrigo’s global footprint will be significantly bolstered. It will be able to gain access to the current key underpenetrated European markets and boost its presence in existing European markets.

Perrigo believes that the acquisition of HRA Pharma will support its goal of annual revenue growth of 3% as well as help it gain double-digit EPS growth in the near term. Moreover, HRA Pharma’s expertise in leading the switch of prescription-to-OTC women's health products may help boost Perrigo’s top line by conversion of popular drugs to OTC going forward.

Perrigo’s shares were up 9% on Sep 8 following the news. The company’s shares have gained 0.7% so far this year compared with the industry’s increase of 8.1%.

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Perrigo had initiated the transformation process to change itself from a healthcare company to a self-care company in 2019. The first key acquisition in this transformation process was of the global leader in private label oral self-care products, Ranir Global Holdings that has significantly boosted the company’s revenues in the past two years. This was followed by several other acquisitions over the period, including some market-leading OTC self-care brands from Sanofi (SNY - Free Report) , which further boosted the company’s portfolio.

As part of the transformation process, the company also divested its other portfolio of products, which includes animal health business to PetIQ (PETQ - Free Report) in 2019 and generic Rx Pharmaceuticals business to Altaris Capital Partners in July 2021. The company is also planning to divest its Latin American businesses going forward.

Zacks Rank & Stock to Consider

Currently, Perrigo carries a Zacks Rank #4 (Sell).

Vertex Pharmaceuticals (VRTX - Free Report) is a better-ranked stock from the pharma/biotech sector, sporting a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Vertex’s earnings estimates have been revised upward from $12.28 to $12.37 for 2021 and from $13.02 to $13.13 over the past 30 days. The company delivered an earnings surprise of 7.09%, on average, in the last four quarters.