Putting ‘Descendis’ behind it
Ascendis is back in play with ‘new’ old directors and a new shareholder. And all options to restore value are on the table
● The old guard is back at Ascendis — but the market is clearly wanting a second opinion before backing the debt-laden health-care conglomerate for a full recovery.
Late last year two prime movers of Ascendis’s acquisitive phase, former CEO Karsten Wellner and co-founder Gary Shayne, were voted back onto the board as nonexecutive directors. The experienced Andrew Marshall, former CEO of Oceana and Nampak, was removed as chair but appointed CEO. Yet it seems likely that Wellner and Shayne could have more boardroom influence at Ascendis as the months roll by.
Not long after these board developments took place the big news came that Ascendis had got shot of its international lenders, Blantyre and L1 Health, which were clearly turning the screws on the business in terms of repayment plans for the remaining debt. The lenders had earlier walked away with Ascendis’s profitable (and promising) offshore operations, including the cash-spinning Remedica business, in exchange for settling the bulk of its €437m (almost R7.8bn) debt.
Ascendis, which recently sold its Respiratory Care Africa unit and animal health operations and now consists of ongoing operations in the pharmaceutical, medical devices and consumer brands divisions, was left with R630m of loan facilities from Blantyre and L1 Health.
What has transpired is that “special situations” investor
Apex and an unnamed black-owned health and beauty company has taken over that remaining debt. These two will most likely be calling the shots for now.
The unnamed company is believed to be health-care products manufacturer Pharma-Q. This adds an element of intrigue to proceedings in terms of future dealmaking at Ascendis.
Apex is headed by well-known dealmaker Charles Pettit (who built the Torre Industrial empire from the remnants of the crane business) and has well-respected investment company Sabvest Capital as a 49% shareholder.
Pettit was formerly the prime mover at AfrAsia, a specialist lending business to emerging and small businesses. Significantly, AfrAsia was one of the funders of Ascendis when it started its acquisitive drive nearly 10 years ago.
Pettit says the early engagement with Ascendis during its acquisitive phase meant Apex had good insight into the group’s business model and operating structure. He says:
“It’s a big deal for us, but we are comfortable that the underlying assets will clear the debt. So there is downside protection. At this point we can see an array of potential outcomes.”
Details should be forthcoming at the end of this month, he says.
Charles Pettit
Aside from the “localisation” of the remaining debt, the agreement with the Apex consortium provides Ascendis with more time to either rebuild and reshape its operations for sustainable profitability, or unlock the maximum value for shareholders if more operational assets are sold off.
Ascendis has already flagged the potential sale of its profitable pharma division. This could bring in a pretty penny, with the pharma business likely to produce about R30m in earnings before interest, tax, depreciation and amortisation (ebitda) this financial year.
The remaining operations in consumer brands and medical devices generated ebitda of R90m and R60m respectively in the financial year to end-June 2021, which suggests considerable value can be created in a debt-free or debt-light Ascendis.
At this juncture the weakness in the share price, which is down nearly a third from its mid-October annual peak, suggests that investors aren’t convinced that the prescription to restore value and reinforce growth prospects is the right one.
No doubt the emergence of Wellner and Shayne, who oversaw Ascendis’s headlong charge into heavy deal debt, might worry some punters. But the other side of the coin is that the
two men do have intimate knowledge of the intricacies of the operational assets and are unlikely to be given free rein to incur deal-driven debt again.
While Apex’s emergence does give some relief from the debt pressure that existed with more mercenary lenders like Blantyre and L1 Health, there might be some fretting about how the new debt holder extracts its value from the situation.
The group’s last engagement with a listed company was at engineering group ELB, which was eventually bought out at a price that some vocal shareholders believed was an absolute steal.
There are several options open to Ascendis, though the sale of the pharma division seems the most likely at this point. Provided the pharma sale is done at a decent multiple, Ascendis could capitalise on a firmer share price by opting for a rights issue. A shares-for-cash issue might be problematic in the short term, however, because at the recent AGM shareholders did not pass the general authority for directors to issue shares for cash.
Or the Apex consortium could be convinced to swap all or part of its debt for equity, which would result in a new influential shareholder emerging at Ascendis. A longer-term left-field option might even see Pharma-Q reverse-listed into Ascendis, though at this stage the company might rather be considered a potential buyer of certain of Ascendis’s assets.
Apex, no doubt, can afford to bide its time. Pettit says Apex would like an equity return from Ascendis — but he says there are certain businesses the consortium might be interested in buying. “We are comfortable with all the alternatives. Business rescue has been avoided, and we get the first chance to present a recapitalisation plan. We want to get an outcome here … for all shareholders.”
The first order of business will be to deal with the debt, which could cost Ascendis R80m-R100m a year to service. But equally important will be to bring the shareholder grouping under Carl Neethling, the chief investment officer at private equity firm Acorn, onside.
Neethling’s grouping, which speaks for about 20% of the issued shares, purportedly pitched proposals for an offer (subsequently rebuffed) of 100c a share to buy out Ascendis, and seems to lean towards a recapitalisation through a rights issue.
The sale of any assets will no doubt be thoroughly scrutinised by the Neethling grouping, so there is a safety valve in terms of ensuring that maximum shareholder value is attained.