Unpacking the rise of PharmEasy and its unconventional Thyrocare deal

The most astounding thing about PharmEasy's acquisition of Thyrocare isn’t about small fish eating big fish. But about how the 32-year-old founder of a loss-making startup was able to convince a 62-year-old entrepreneur, known for his frugality, to invest one-third of the sale money back in the acquiring startup at twice its valuation.

It was coincidence that PharmEasy’s Siddharth Shah and Thyrocare’s A Velumani were both working from Lonavala, a hill station about 85 km from Mumbai, when they first met. That was on May 26. A month later, the deal was announced.

“First, (Velumani) agreed on the deal and then asked where we were getting the money from,” Shah told The CapTable. The PharmEasy founder says he explained to Velumani that he had stitched up $500 million from a consortium of 7-8 investors, including tech investor Prosus, private equity major TPG, and a fund from Kotak Mahindra Bank.

Velumani then agreed to invest about $200 million in PharmEasy from the more than $600 million he was to get from selling Thyrocare. Shah had to ask the other investors to put less money in the $500 million round, expecting Velumani’s shareholding to bring in much-needed “knowledge transfer” and skin in the game.

“Till the very last day, it was a conversation. I never thought it would happen. We gave a go-ahead for his investment on the 24th (May) morning and on the 25th, the deal was getting signed,” said Shah.

Both the 7-year-old online pharmacy and the 26-year-old listed diagnostics company have had a great run the past year as demand for medicine delivery and health checkups, especially Covid-related tests, has spiked.

Thyrocare’s market capitalization has increased by three times to Rs 7,656 crore since March 2020. Its share price increased from Rs 495 apiece on March 13 in 2020, just before Covid-related lockdowns started, to Rs 1,448 on June 25, when the deal was announced. 

PharmEasy has raised nearly $1 billion in funding over the last 12 months, and consolidated its market leadership by acquiring Medlife and becoming the largest consumer-facing pharma delivery business in the country.

The parent company is API Holdings, which holds all its business—consumer facing (PharmEasy), distribution (Ascent) and diagnostics (Docon). For simplicity, we refer to it as PharmEasy throughout the article.