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Acquisition of the majority of The Scientific Group Proprietary Limited
ASCENDIS HEALTH LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2008/005856/06)
ISIN: ZAE000185005 JSE share code: ASC
(“Ascendis” or “the Company”)
ACQUISITION OF THE MAJORITY OF THE SCIENTIFIC GROUP PROPRIETARY LIMITED
(“SG”)
1. Introduction
Ascendis shareholders are advised that the Company has entered into an agreement (“the
Agreement”) with Capitalworks Private Equity GP Proprietary Limited in its capacity as
general partner of Capitalworks Private Equity Partnership, Brimstone Investment
Corporation Limited, the trustees of the Scientific Management Trust, the trustees of the
Scientific Incentive Trust and the trustees of the Scientific GP Trust in its capacity as the
general partner of the Scientific Investment Partnership (collectively, “the Selling
Shareholders”), in terms of which Ascendis will acquire 100% of the issued ordinary share
capital of Lexshell 834 Investments Proprietary Limited (holder of 100% of the issued
ordinary share capital of SG) and contemporaneously dispose of the portion of the SG
business that excludes the diagnostics business back to the Selling Shareholders.
The net effect of the transaction will be the acquisition by Ascendis of 100% of the
diagnostics business of SG (“SG Diagnostics”) (“the Acquisition”).
2. Rationale for the Acquisition
2.1 A Growing Medical Devices Platform
The medical devices businesses within the Pharma-Med Division of Ascendis have been
important drivers of growth for Ascendis, via the established platform of Surgical Innovations
and the recently acquired Respiratory Care Africa businesses (“Ascendis Medical”).
Collectively, these businesses have positioned Ascendis Medical as a leading provider of
turnkey solutions to private and public hospitals and clinics, as well as medical professionals
in the Southern African primary health care markets. Accordingly, Ascendis now seeks to
further consolidate its position as a market leading supplier through implementing the
intended Acquisition.
The Ascendis Medical range already incorporates, inter alia, hi-tech surgical consumable
and capital equipment within the varying fields of general surgery, gynaecology, urology, ear
nose throat, spine and biosurgery and interventions - with a focus on operating theatres and
intensive care units. Following the conclusion of the SG Diagnostics transaction, Ascendis
Medical will exhibit significant scale and scope due to the addition of a competence in the
diagnostics market. SG Diagnostics is therefore considered an ideal “bolt-on” opportunity for
Ascendis as the SG Diagnostics product range will further entrench a turnkey offering of
devices within Ascendis Medical.
SG Diagnostics will be integrated into the successful Ascendis Medical platform thereby
driving additional revenues, profits, synergy benefits and efficiencies. It is anticipated that the
combination of these aspects will provide attractive margin enhancement for the group.
2.2 Diagnostics and Preventative Health Care
Ascendis Medical considers an entry into the medical diagnostics market as strategic for
many reasons, including the global trend of health care towards preventative care where
diagnostics plays a vital role. Similarly, there is an increasing demand for In-Vitro
Diagnostics for the purposes of disease detection, particularly in response to increased
investment in emerging market health care opportunities.
2.3 Diversified Suppliers and Customers
Not only does this Acquisition represent an active and growing market within the holistic
healthcare industry, but it also represents an attractive opportunity for Ascendis due to the
inclusion of renowned international principal suppliers with whom SG Diagnostics enjoys
long standing relationships plus the introduction of a diversified customer base which
extends to pathology laboratories and research institutions. The relationships developed with
both suppliers and customers shall continue to be fostered by the SG Diagnostics
management team who are set to continue to drive the business going forward.
2.4 Export Growth
SG Diagnostics’ strong growth experienced to date throughout the rest of the African
continent is another attribute which contributed towards cementing the rationale to conclude
the Acquisition. Exports account for c. 40% of SG Diagnostics’ sales, with particularly strong
sales growth experienced in both Botswana and Zambia – providing Ascendis with a further
channel through which it can accelerate its African expansion strategy.
3. Salient Features of the Acquisition
The Acquisition will conclude within five business days following the fulfilment of the
conditions precedent set out in paragraph 3.2 (“Closing Date”) and will be in effect from the
first business day of the calendar month in which the last of the conditions precedent has
been fulfilled (“Effective Date”).
3.1 The Purchase Consideration
3.1.1 An amount of R283,733,383 (“Base Consideration”); and
3.1.2 A maximum amount of R100,000,000 payable only to the extent a pending
specified contract (“Contract”) is awarded to SG Diagnostics in 2015
(“Additional Consideration”),
(collectively, “Purchase Consideration”).
3.1.3 The Base Consideration will be discharged by Ascendis utilising existing cash
resources, existing bank facilities available to the group and the proceeds of
a planned issue of shares for cash to public shareholders in the form of a
vendor consideration placement as defined within the JSE Limited Listings
Requirements, settled as follows:
3.1.3.1 An amount of R153,382,500 on the Closing Date payable as
settlement of various SG loan accounts with the balance thereof
payable to the Selling Shareholders; and
3.1.3.2 An amount of R4,947,541 on or before 1 June 2015; and
3.1.3.3 An amount of R25,363,750 on or before the sixth month
anniversary of the Closing Date payable to the Selling
Shareholders; and
3.1.3.4 An amount of R26,149,592 on or before the first anniversary of
the Closing Date payable to the Selling Shareholders; and
3.1.3.5 An amount of R73 890 000 on or before the earlier of
12 December 2015 and the first anniversary of the Closing Date.
3.1.4 The Additional Consideration will be discharged by Ascendis in cash on or
before the first anniversary of the date on which the first order in respect of
the Contract may be received by SG Diagnostics.
3.2 Conditions Precedent
The Acquisition is, inter alia, subject to the following key conditions precedent:
3.2.1 Ascendis obtaining the consent of SG’s key suppliers to a change in control,
by no later than 31 January 2015;
3.2.2 The implementation of the agreement pertaining to the disposal of the SG
medical devices business as contemplated within paragraph 1, by no later
than 31 January 2015; and
3.2.3 Ascendis and the Sellers obtaining such regulatory approvals necessary to
enable them to implement the Acquisition, including the consent of the
Competition Authorities.
3.3 Warranties and Indemnities
Warranties and indemnities applicable to the Acquisition are standard for
transactions of this nature.
4. Unaudited Pro Forma Financial Effects (“Financial Effects”) of the Acquisition
SG Diagnostics is set to contribute a further R32.8 million profit after tax towards Ascendis’
earnings on a historic last 12 months basis, resulting in a pro-forma 12% increase in the
Company’s published annual earnings per share, as evidenced within the table below. In the
event 100% of the Contract is awarded, additional earnings are anticipated to be generated
by SG Diagnostics and accordingly the maximum Additional Consideration of R100 million
will only be payable to the Selling Shareholders upon the probable realisation of such
additional earnings being received by SG Diagnostics. Furthermore, SG Diagnostics will
contribute additional net asset value of R75 million to Ascendis.
The table below sets out the Financial Effects of the Acquisition on the Company’s most
recently published annual earnings per share (“EPS”), headline earnings per share (“HEPS”),
fully diluted earnings per share (“Diluted EPS”), net asset value per share (“NAV”) and net
tangible asset value per share (“NTAV”). The Financial Effects and the preparation thereof,
which is the responsibility of the directors of Ascendis, have been prepared for illustrative
purposes only, and because of their nature, may not give a fair reflection of the Company’s
financial position and results of operations, nor the effect and impact of the Acquisition on
Ascendis going forward. In order to accurately reflect the impact of similar periods, the
management accounts of SG Diagnostics for the 12 month period ending 31 August 2014
have been incorporated within the Financial Effects below.
30 June 2014 - Pro forma 30
Before the June 2014 - After
Acquisition the Acquisition Change
4
(cents) (cents) (%)
1,3,5,7
HEPS 65 73 12%
1,3,5,7
EPS 65 73 12%
1,3,5,7
Diluted EPS 65 73 12%
2,3,6,7
NAV 572 614 7%
2,3,6,7
NTAV (41) (64) 58%
3,7
Weighted average and total shares in issue 212,131,999 222,265,332 5%
Notes:
1. For the purposes of calculating HEPS, EPS and Diluted EPS, the amounts in the “30 June 2014 - Before the
Acquisition” column are based on Ascendis’ statement of comprehensive income for the annual period
ended 30 June 2014, as announced on SENS on 9 September 2014.
2. For the purposes of calculating NAV and NTAV, the amounts in the “30 June 2014 - Before the Acquisition”
column are based on Ascendis’ statement of financial position for the annual period ended 30 June 2014, as
announced on SENS on 9 September 2014.
3. HEPS, EPS, Diluted EPS, NAV and NTAV in the “30 June 2014 - Before the Acquisition” column have been
calculated using the pro forma weighted average and total number of shares in issue, as applicable, for the
annual period ended 30 June 2014 of 212,227,595 shares less treasury shares held of 95,596 as per the
published annual results, as announced on SENS on 9 September 2014.
4. The amounts in the “Pro forma 30 June 2014 - After the Acquisition” column have been calculated using the
management accounts of SG Diagnostics for the 12 months ended 31 August 2014. The amounts used to
caluculate HEPS, EPS and Diluted EPS represent the profit before tax amount adjusted by an assumed tax
rate of 28%. A tax rate of 28% is assumed for all “Pro-forma 30 June 2014 - After the Acquisition” column
adjustments.
5. For the purposes of calculating the pro forma HEPS, EPS and Diluted EPS, it was assumed that the
Acquisition was effective on 1 July 2013 and a post-tax lending rate of 7.3% was applied to R131,733,383 of
the Base Consideration, resulting in an implied interest expense of R9.6 million (R152,000,000 of the Base
Consideration is assumed to be financed by way of vendor placement at R15 per share which has been fully
committed to). In the event the maximum Additional Consideration is payable for the Contract, additional
annual revenue of R100 million will be included in the earnings of SG Diagnositcs at a contribution margin
level, for a period of at least five years and is thus expected to be added to the future earnings of SG
Diagnostics as a result of the Contract awarded. For the purpose of this announcement the impact of the
Additional Consideration and the corresponding earnings uplift has not been included in the calculation of the
Financial Effects of the Acquisition.
6. For the purposes of calculating NAV and NTAV, it was assumed that the Acquisition was effective on 30
June 2014 and that the net debt position is increased by an amount equal to R131,733,383 of the Base
Consideration. The allocation of the Base Consideration resulted in an increase of intangible assets of
R209 million
7. Pro forma HEPS, EPS, Diluted EPS, NAV and NTAV have been calculated using the pro forma weighted
average and total number of shares in issue, as applicable, for the annual period ended 30 June 2014 of
212,227,595 shares less treasury shares held of 95,596 plus an additional 10,133,333 Ascendis shares
which will be issued by way of vendor placement to settle R152,000,000 of the Base Consideration.
5. Categorisation of the Acquisition
The Acquisition is categorised as a Category 2 transaction in terms of the JSE Limited
Listings Requirements.
27 October 2014
Johannesburg
Arranger and Financial Advisor
Coast2Coast Investments Proprietary Limited
Sponsor
Investec Bank Limited
Date: 27/10/2014 03:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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