Domestic M&A Deal of the Year: InRetail

Domestic M&A Deal of the Year: InRetail

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With antitrust legislation circulating through the Peruvian Congress, merging the first and second largest pharmaceutical chains in the country required a tremendous level of skill and discretion. But at the end of the deal, the transaction would be the largest ever in the retail and healthcare space in Latin America, and the largest in the drugstore chain space since 2011.

“The acquisition of Quicorp represented a unique opportunity for InRetail to further consolidate our leadership position in the retail pharma industry in Peru, broaden our scope to the manufacturing and distribution of pharma products, and get an international footprint in Ecuador, and to a lesser extend Colombia and Bolivia. Given that InRetail is a publicly listed company, and the sensitive nature of the industry, the transaction required speed and flexibility to execute it smoothly and efficiently,” says Gonzalo Rosell, the Chief Financial Officer of InRetail.

In a period of three months, InRetail had to raise enough debt and equity to finance the acquisition and perform a liability management exercise.

“The acquisition financing was one of the most challenging pieces of the transaction. The US$583mm equity check was mostly funded with debt, but there was also a US$150mm equity component from a co-investor, a private equity fund, which allowed us not to overstretch our leverage ratios. In order to take the bridge loan financing, we needed to execute a liability management exercise at certain subsidiaries of InRetail, for which we had to upsize the bridge loan facility to US$1 billion to prepay old debt,” Rosell says.

On the debt side, InRetail funded the acquisition with a $1 billion bridge loan, which was the largest private bridge in the history of Peru. At the same time, InRetail did a liability management exercise in order to implement the bridge loan facility, prepaying some bonds that the company had issued in 2014.

“The other challenge was to repay the bridge loan facility in the shortest period of time. The day after announcing the M&A transaction we started working on tapping the debt capital markets, and in three months we had successfully issued four international bonds at very competitive conditions, demonstrating the expertise and commitment of our various executive teams involved,” Rosell says.

As far as InRetail’s plans for 2019, Rosell says the company is currently “exploring” new investment opportunities, but the company’s bond issuances through April has enabled the firm to implement its permanent capital structure for now.

“The takeover, integration and capturing of synergies post M&A has gone better that expected, which is reflected in the very positive quarterly results reported by InRetail throughout 2018. Our focus going forward is to continue consolidating the integration process, capturing of synergies and deleveraging,” Rosell says.