If memory serves, I first met the prime movers behind acquisitive health brands conglomerate Ascendis in late 2012. I remember initially fobbing off a lunch meeting aimed at announcing two small acquisitions, then having my arm twisted by a former financial journalist who convinced me there was a bigger story around exciting private equity deal-makers and a potential listing.
Though the initial deal-making involved relatively small operators, what I won’t forget was Ascendis’ unfettered growth ambitions. An acquisition spree was on the cards from the outset. This, I confess, triggered alarm bells. My perceptions of fast-growing acquisitive companies — probably to my portfolio’s detriment — will always be clouded by the startlingly sudden collapse of fast-growing health-care sector darling Macmed in the late 1990s.
When Ascendis bought Nimue Skin Technology and Scientific Sports Nutrition in mid-2013 for a collective R120m, the company had, at that point, spent a collective R620m on acquisitions in 18 months. Executives hinted there was more to come ... a lot more. I wondered where Ascendis would find deal flows to support its growth ambitions without overpaying and overgearing or being sold a dud.
Last month Ascendis entered the big league, announcing a game-changing deal with the acquisition of Remedica Holdings (a generic pharmaceuticals manufacturer based in Cyprus) and Scitec International (a European sports nutrition company) for R4.4bn and R2.9bn respectively. These deals followed hard on the heels of the company’s international deal-making debut when it acquired a 40% stake in Spanish generics maker Farmalider in 2015.
Market perceptions have altered dramatically. The share price has more than doubled since listing in late 2013, and the market capitalisation of R7bn means Ascendis is now roughly the same size as pharmaceutical sector stalwart Adcock Ingram.
The obvious question is whether it is too late to give your portfolio a dose of Ascendis scrip. Without making a prescription, let me say this: since I have interacted with the Ascendis executives they have more than delivered on their profit targets.
The company has acquired profitable, cash-flow-generative companies, some with a considerable tangible net asset value underpin. Perhaps more importantly, Ascendis has not overpaid for them, even if the latest offshore buys are on the outer edge of its Ebitda multiple range.
For me, though, the critical factor is that Ascendis has enhanced profits in its acquired companies on integration, achieving synergies and cost savings that have fattened margins reassuringly.
If Remedica and Scitec offer operational platforms for further bolt-on acquisitions internationally then it may be reasonable to expect the executive team to replicate some of the success achieved locally in rapidly building a compelling cash flow centre. There does seem to be a growing institutional craving for Ascendis scrip, judging by the share placement proposals that will fund part of the latest acquisitions.
But in the meantime I wonder if Bidvest — the shareholder of reference at Adcock Ingram — is paying any mind to developments at Ascendis. At face value Ascendis seems far more closely aligned to Bidvest’s value-creating strategy than Adcock Ingram is. Just a thought ...