Aspen sells European business unit for R3.6bn

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JIMMY MOYAHA: Aspen Pharmacare Holdings Limited announced today that they have concluded a transaction with Energen Healthcare International for the sale of one of their business units to the tune of just north of €200 million [R3.6 billion]. We’re going to take a closer look at this with the company’s group chief financial officer, Sean Capazorio, who joins us on the line now to see what we make of these developments.

Sean, lovely having you back on the show, especially so soon after results. Congratulations are in order, I suppose.

SEAN CAPAZORIO: Yes, certainly we’re very proud of the transaction.

Maybe just to preface, we’re not openly out there looking to sell our assets, but we did.

We have stated to all of our shareholders that we will continue to look at opportunities that come our way, and if they’ve got significant value and we can unlock more value from the sale than running it ourselves, those are the types of opportunities we look at, and certainly this one fits right into that space.

So a very good price for the asset. It’s really just one brand called Ovestin [hormone replacement therapy].

And it’s for the European market only. So we still retain the Ovestin that we own outside of Europe – in Latin America and Africa.

JIMMY MOYAHA: Sean, I want to take a closer look at the transaction because, as you rightly mentioned, you might not be looking to sell out of any particular assets, but this opportunity certainly doesn’t look like one you could have passed by. The particular asset that you’re selling off contributed a little over R750 million in revenue to the Aspen Group, and of that around R230-odd million in profits in the last financial year.

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Now, many people would think this is profit that you are giving up, that you should not be throwing away, so to speak. But, from a business perspective, you’re realising a profit on disposal of R2 billion.

SEAN CAPAZORIO: Yes, exactly right. It’s R2 billion, and if you look at the multiple – we didn’t disclose the Ebitda [earnings before interest, tax, depreciation and amortisation] in there – but the Ebitda multiple is north of 12 times.

Obviously, because this product has a much better gross margin, it’s a better multiple than we got for our APAC deal, the Asia-Pacific deal, which was about 11.4 or 11.5 times.

So it does demonstrate that our assets are double-digit multiples, and yet the Aspen business as a whole is valued in the single digits.

So it certainly gives everyone a view of the true value of Aspen.

JIMMY MOYAHA: Sean, I want to take a look at how Aspen moves forward from this. Obviously, the ideal scenario is not to be selling off assets unless it makes commercial sense, but at the same time you don’t want to be sitting with a business that continues to remain undervalued when you’ve got such important assets within the business. How does this then affect your strategic thinking around how you position your assets and potentially leverage them in the market?

SEAN CAPAZORIO: Yes. Obviously, in terms of the pharma space, there’s a continual churn of products. People are looking to buy and sell products. So we’re just part of that network. So we’ll obviously use that same sort of network of pharma companies and private equity to look at opportunities for acquisition and obviously opportunities for disposal.

So when these come our way, we take them seriously if they make sense and if they’re at a good multiple.

Look, if I look at what I view as core to Aspen – our Africa business and our Latin America business are core – those are our emerging market businesses making up more than 80% of the commercial pharma turnover.

So those are certainly areas where it certainly would be very difficult for us to dispose of anything.

But obviously in areas like Europe, which is a developed market with mature brands, if there are opportunities to unlock value there and they make sense, then we’ll certainly consider them.

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And then in terms of allocation, if we then see that share buybacks, given the current share value, are the best mechanism to return value to shareholders, we’ll continue to follow that road.

JIMMY MOYAHA: I was just going to get to that, Sean – around what it is that you then do with the proceeds. From a business perspective, you have your own business areas that you are focused on as a company, but when you realise profits like this, how then do you return that shareholder value? I suppose as you mentioned, those share buybacks are one example.

Acquisitions – anything of interest in that respect? Are you ring-fencing some funds to potentially say, look, further down the road if we happen to need funds for A, B, and C, we will have a bigger cash pool to tap into?

SEAN CAPAZORIO: Yes, I think it’s a bit of both.

I think share buybacks are the priority at this stage, obviously, but if there’s an acquisition that makes sense – obviously nothing transformational – but if there are bolt-on opportunities, then we will certainly consider that.

And we always do keep, do ring-fence, funding for those types of opportunities. So I think it is both, but certainly with the skewing or weighting towards share buybacks.

JIMMY MOYAHA: A successful transaction resulting in nearly R2 billion of profits – and that isn’t even all of the profits that Aspen Pharmacare will realise on this particular asset that it holds. They still hold all of the asset rights outside of Europe. They’ve only sold what relates to the European markets at this stage.

We’ll have to leave the conversation on that note. Chief financial officer at Aspen Pharmacare Holdings, Sean Capazorio, joined us to look at the sale of one of their business units to Energen Healthcare International, and what that means for Aspen’s business.

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