--- Adds comments from chief executive, more detail and share price ---
Alliance Pharma (LON:APH) is targeting major international expansion by buying the health products arm of Sinclair IS PHARMA (LON:SPH) for £132.2mln.
Alliance says the deal, which will expand its dermatology portfolio, will take it into 85 countries rather than the 30 territories it currently covers.
The company, which has a strong focus on Europe, says the move will allow it to enter or expand its presence in markets such as the US and Asia Pacific.
It will add 27 new products to its medicine cabinet, bringing in revenues of £43.3mln and underlying earnings (EBITDA) of £9mln.
Chief executive John Dawson said: "We're going to have good concentration on our home turf but exposure to some exciting parts of the world as well."
Alliance's business currently comprises of skin care preparations such as Hydromol ointment, opthalmology treatments and a range of other niche products.
The 27 products it is acquiring as part of the deal include five key growth brands such as scar prevention product Kelo-Cote, Flammacerium, Aloclair, Kelo-stretch and Atopiclair.
It expects the deal to be significantly earnings-accretive by the end of 2016. It should result in cost savings of £5mln a year through cuts in head office and other costs.
Alliance will effectively double in size following the deal, which is so large that it is classified under stock exchange rules as a reverse takeover.
It will finance it via a £78.5mln vendor placing and £54.2mln to be drawn down under new loans.
The group already has the backing of investors holding around 47% of Sinclair’s shares.
But the stock dropped 4.75p, or 9.3%, to 46.25p following the news. Shares in Sinclair, which plans to focus on its aesthetics business, rose 2.5p, or 7%, to 38.25p.
Dawson said Alliance's price fall was "not unusual" given the scale of the fund-raising for the deal.
He added: "Once the market starts to understand what this acquisition can do for us, I'm fairly confident we'll start to see some upward movement."
Alliance has 85 staff, plans to take on about 39 workers from the Sinclair business and aims to recruit a further 20-25 people.
It will boost its European presence, adding offices in France and Italy to a small base in Germany.
It says Sinclair has two US distribution agreements which will give it a foothold there, as well as a small business in Brazil.
The deal will also take it into North Africa and the Middle East and will help it to expand in China and Asia Pacific.
Only a fifth of the group's sales are outside the UK at the moment, but the enlarged company will have half its sales overseas.
Dawson said: "Having over half of our business outside the UK, we will have a greater ability to compete for international deals and in-licensing opportunities."