Deals put Ascendis ahead of its own ambitious schedule for global growth
A waiter stands near a pile of rubbish in front of a restaurant in Paris during a strike by the city’s garbage collectors. The strike, which also includes sewerage workers, is in protest against a government plan to amend labour laws WHEN he was interviewed a few years ago about his vision for Ascendis, CEO Dr Karsten Wellner did not hold back — he wanted it to be the new Aspen, he said, only more diversified.
Aspen is the success story of the pharmaceutical sector (and beyond), having evolved from a medium-sized business into a multibillion-rand multinational.
“So far, we have always kept our promises. We want to be a sizable health company with strong South African and global brands with a global footprint and more international shareholders,” said Wellner of the company, which owns and manages brands in the human, animal and plant sectors.
At first, the deals done by Ascendis — which opened shop in 2008 — involved buying smaller businesses. With many deals in the pipeline the group saw the need for more funding, and in 2013 it listed on the JSE through Cape-based investment group Coast2Coast, its biggest single investor with a 43% stake.
Now Ascendis is joining the big league, announcing two multibillion-rand acquisitions at the end of last month. It is buying Remedica Holdings (a niche generic pharmaceuticals manufacturer in Cyprus) for R4.4-billion and Scitec International (a European sports nutrition company) for R2.9-billion.
The deals also provide an opportunity to introduce some of its wellness and sports brands, such as Solal, Nimue Skin Technology, Evox and Scientific Sports Nutrition, to international markets.
These purchases are in line with its business model of buying platforms and bolt-ons in its three divisions: consumer brands (vitamins, sports nutrition and nutraceuticals); Pharma-Med (prescription drugs and medical devices) and PhytoVet (plant and animal health and care).
“We are a young company but some of the brands are 40 to 50 years old. We don’t acquire turnaround businesses; we only buy healthy businesses — the risk of integration is much lower. We’re not change specialists. We want businesses that are entrepreneurial and we make them slightly corporate,” said Wellner.
Early last year, Ascendis set a target of deriving 30% of its total turnover from offshore in the medium to long term. The recent deals mean it will exceed that goal — and sooner rather than later. At half-year the group reported about 80% of revenues in South Africa and 20% outside. After the latest deals, half of its revenues will be in dollars and euros, and half in rands.
The deals are therefore expected to serve as a rand hedge and add close to R300-million to its profit after tax (including finance costs).
The group is still on the hunt for defensible, well-established brands or generic products with a focus on niche and first-routeto-market generics.
Wellner likes Eastern Europe (as do successful South African heavyweights such as Steinhoff and SABMiller).
Potential deals are dissected by Coast2Coast, an investment business that sees itself as a kind of Remgro, a company that holds its investments for the long term, much like Warren Buffett does, and locks in founders and managers with years of experience, for the longer term.
“All the corporate work is GOING WELL: Ascendis CEO Dr Karsten Wellner keeps his focus on operations and internationalisation done by Coast2Coast. I can focus on my teams with operations and integrating and investor relations and internationalisation.
“If I look at the history of Adcock Ingram — how much time did Jonathan Louw have to look after the day-to-day business? That’s the charm of having a focused investment company. There is someone always looking after our acquisitive interests.”
Coast2Coast has a presence in Poland, and Wellner is attracted to that country’s entrepreneurial flavour. The price-earnings are not too high “and the guys are very well trained”, he said.
Ascendis has identified Australia as a potential market for its wellness and nutraceuticals business.
The country, with a population of about 24 million, is the second-largest sports nutrition market in the world; consumption per capita of this category is the highest worldwide.
Ascendis has ranked all countries in the world and created a scorecard based on diversification of their markets, PE multiples paid, customer concentration and market consolidation.
“A lot of companies don’t want to sell to private equity — they know they will sell in four to five years and their business would be cut into pieces. We have long-term interests and can offer these entrepreneurs a nice earn-out while keeping them motivated.”
Wellner spends much of his time travelling. Part of this is to see about deals, and partly it’s to meet fund managers.
He visits many developingmarket fund managers, and said South Africa fared well in the context of its emergingmarket peers . “The fund managers love the regulations and liquidity of the local financial market.
“Of course they see the political risk, but Turkey, Brazil and Russia have higher political risk. I saw slight optimism recently. I think we probably overestimate our problems sometimes because we are looking at ourselves, but internationally our issues are less significant.”
Ascendis has been one of the few listings in the healthcare sector over the past few years. Litha and Cipla delisted, and there was talk of a possible Adcock delisting.
Ascendis’s market cap is R6.9-billion, with long-term pharmaceutical stalwart Adcock Ingram only marginally bigger at R7.6-billion. There’s still a long way to go to get anywhere near Aspen, with its market cap of R160-billion, but it’s early days yet for a group that has already confounded expectations.
“Just like a number of other small pharmaceutical players in South Africa that have come and gone, I wasn’t expecting much to come of them,” said Alec Abraham, equity analyst at Sasfin Wealth. Ascendis did not have the scale to be a major player, he said, but it was going through “explosive earnings growth from a low base in the medium term”.
We can offer these entrepreneurs a nice earn-out while keeping them motivated