TIDMGHG
RNS Number : 6596P
Georgia Healthcare Group PLC
21 November 2016
London, 21 November 2016
GHG announces major transaction in the pharmacy business, to
become the largest pharmaceutical retailer in Georgia
Georgia Healthcare Group PLC ("GHG" or the "Group") announces
that it has signed a Sale and Purchase Agreement ("SPA"), subject
to competition agency approval, to acquire JSC ABC Pharmacia ("ABC"
or the "Company"), the fourth largest pharmaceutical retailer and
wholesaler in Georgia, from certain private shareholders (the
"Transaction"). GHG will merge ABC with its existing pharma
business, GPC, and the name of the merged company will be JSC
Georgian Pharmacy ("GEPHA"). Upon completion of the Transaction,
GHG will own a 67% equity stake in the combined pharmaceutical
business and the remaining 33% minority stake will be owned by
ABC's existing main shareholders, being Mr. Enriko Beridze and Mr.
Mikheil Abramidze.
This Transaction underpins GHG's expansion strategy and further
consolidates GHG's position as the leading integrated player in the
Georgian healthcare ecosystem of GEL 3.4 billion value. The
Transaction strengthens GHG's position as the major purchaser of
pharmaceutical products in Georgia, and provides a platform which
offers significant cost and revenue synergy potential. Moreover,
GEPHA will be the largest retailer in the country, with over two
million customer interactions per month through over 230
pharmacies. The combined pharma business does not require
significant ongoing capex investments, and is therefore expected to
generate strong free cash flow.
About ABC
ABC has a 14% market share by sales of the Georgian
pharmaceutical market, which is largely concentrated within the
hands of four major players. ABC operates 122 pharmacies across
Georgia under the brand name Pharma-Depot. ABC has approximately
1.1 million monthly retail customer interactions, with an average
bill size of GEL 11.6. Initially engaged in oncology and other
niche medicine distribution, ABC started to expand its retail
network in 2011 and has grown organically since.
Prior to the Transaction, ABC had two main shareholders and four
smaller shareholders (together the "Selling Shareholders"). The
main shareholders, each of whom is a founder of the Company are:
Mr. Enrico Beridze, the Company's CEO (81.6% equity stake) and Mr.
Mikheil Abramidze, the Company's COO (14.4% equity stake) (the
"Managing Shareholders"); The four other shareholders are in
managerial positions at the Company (with a 1.0% shareholding
each), who received ABC shares as part of the Company's ESOP
programme.
Transaction details
The Transaction values ABC at an enterprise value of GEL 89.0
million (5.1x EV / EBITDA) with an equity value of GEL 101.7
million, and GPC's enterprise value at GEL 63.6 million (6.0x EV /
EBITDA) with an equity value of GEL 47.4 million. The Transaction
is expected to be earnings accretive to GHG from day one.
As consideration for their shares, GHG will pay US$ 25.0 million
(GEL c.62.2 million(1) ) in cash to the Selling Shareholders and
transfer a 33% equity stake in GEPHA to the Managing Shareholders.
The US$ 25.0 million cash consideration is payable in six tranches,
and the Selling Shareholders will be obligated to use 33% of the
cash proceeds to purchase GHG shares on the market. The GHG shares
so acquired will subsequently be subject to a lock-up agreement
that expires annually in a straight line over three years.
(1) USD/GEL exchange rate 2.4890 as of 14(th) November,
2016.
The completion of the Transaction, upon which 100% of the shares
in ABC will be transferred to GHG, is expected to be in January
2017 ("Completion").
The six cash tranches will be paid over five years: US$ 12.0
million will be paid upon Completion. US$ 5.0 million will be paid
on the first anniversary of Completion (expected to be January
2018); and US$ 2.0 million will be paid on each of the second,
third, fourth and fifth anniversaries of Completion.
During the twelve months starting from January 1(st) 2023, GHG
and the Managing Shareholders will have call and put options,
respectively, on the remaining 33% minority stake in the combined
pharma business. The exercise price of the call option will be
6.0-times EV/EBITDA and the put option will be 4.5-times EV/EBITDA,
based on preceding twelve financial months at the time of exercise.
The put option amount shall not exceed US$ 85.0 million. Upon
exercise of either option, 33% of the cash proceeds received by the
Managing Shareholders will be used to purchase GHG shares, with a
lock-up that expires annually in a straight line over two
years.
The management of the combined pharma business
Mr. Enrico Beridze, ABC's CEO for more than 15 years, will lead
the combined pharma business. Mr. Beridze founded ABC in 1999,
following his career as a representative agent for Bristol-Myers
Squibb Company, primarily focusing on oncology business. Mr.
Mikheil Abramidze, ABC's COO for more than 15 years, will take
charge of the operations of GEPHA. Under Mr. Beridze and Mr.
Abramidze's leadership, ABC grew organically to become the fourth
largest player in the market with a compound average revenue growth
rate of 18.7% over the last two years, focusing on a mass market
pharmacy model and with strong organic growth.
Mr. George Arveladze, the Deputy CEO of GHG in charge of
ambulatory and pharma business, will be the chairman of GEPHA. Mr.
David Kiladze, currently the CEO of GPC, will become the advisor to
the Group CEO regarding pharma business.
The fact that the Managing Shareholders will be holding
significant number of GHG shares as part of the Transaction
structure, is intended to ensure that they have the overall
interest of the Group in mind as they manage GEPHA. Furthermore,
the service contracts of both Managing Shareholders have been
extended for a six-year period. If the Managing Shareholders fail
to deliver on certain targets over these 6 years, GHG has an
accelerated call option on the remaining 33% minority stake in
GEPHA.
Financial highlights of ABC
Key 2015 income statement and balance sheet information for ABC
is detailed below. Figures are unaudited and derived from ABC's
management accounts. Following the Completion, ABC financials will
be reported under GHG's pharma segment.
ABC and GPC financial ABC GHG Pharma
highlights (GPC)
(GEL millions)
2015 1H16 2015 1H16
Revenue 176.7 106.5 189.4 97.6
of which:
(A): Breakdown
by product lines:
Pharmaceutical
products 141.7 83.6 128.9 72.0
Para-pharmacy 35.0 22.9 60.5 25.6
(B): Breakdown
by sales channels:
Retail 118.1 74.8 140.6 72.9
Wholesale 58.6 31.7 48.8 24.7
Gross profit 37.6 23.4 43.6 18.9
Gross margin 21.3% 22.0% 23.0% 19.3%
EBITDA 11.1 8.7 8.0 1.8
EBITDA margin 6.3% 8.2% 4.2% 1.9%
Net profit / (loss)
before tax 5.1 7.7 0.8 (0.1)
Net profit / (loss)
after tax 3.4 6.4 0.9 (0.2)
Total gross assets 60.0 57.6 67.7 53.0
Net debt 2.9 2.7 (12.6) (16.2)
Equity 30.9 31.9 8.1 1.0
In 2015 and in 9M16, GHG purchased GEL 3.9 million and GEL 3.5
million worth of products from ABC, respectively.
GHG purchases from ABC
(GEL millions)
2015 9M16
GHG purchases from ABC 3.9 3.5
Of which:
Purchases by the healthcare
services business 1.2 1.2
Medical insurance claims
on pharmaceuticals 2.7 2.3
Transaction rationale
The Transaction further underpins GHG's expansion strategy and
its aim to be the leading player in the Georgian healthcare
ecosystem. Following Completion, GHG will not only strengthen its
position as the largest purchaser of pharmaceutical products in
Georgia, but will also become the largest retailer in Georgia. This
will provide GHG with a strong platform, with c.30% share of the
pharma market, to capitalise on the GEL 1.3 billion Georgian
pharmaceuticals market, which represents 38% of total healthcare
spending in the country.
GHG management expects to eliminate unnecessary costs, deliver
on cost synergies with a total of at least GEL 11.8 million per
annum upside to EBITDA by:
- Eliminating unnecessary costs, with approximately GEL 3.9
million annualised synergies on EBITDA expected within a year
following the acquisition. The savings will result from combining
the back-office operations, distribution and warehousing of GHG's
existing pharma business with ABC, and other unnecessary operating
cost eliminations.
- Procurement synergies, with approximately GEL 7.9 million
annualised synergies on EBITDA that can be achieved within a year
of the acquisition as a result of consolidating purchases of
pharmaceuticals and medical disposables (c.2% of combined COGS of
the two companies). This consists of savings from additional
manufacturer discounts and captive cost synergies, resulting from
the decrease in GHG's existing cost of pharmaceuticals and medical
disposables, plus redirecting more of its purchases to GEPHA, thus
eliminating the distributor margin.
As a result of the above, GHG expects to significantly boost the
EBITDA of GEPHA over the next few years. In addition we expect to
realise revenue synergies in the more profitable ambulatory
business. The Transaction enhances GHG's existing "patient capture"
business model through its strong customer loyalty franchise in
GPC--with over two million monthly customer interactions and 0.5
million members of its loyalty program, which is expected to be
enhanced by the clients of the combined pharma business. In
addition, the Transaction is expected to drive additional referrals
to GHG's ambulatory clinics.
Nikoloz Gamkrelidze, CEO of Georgia Healthcare Group
commented:
"I am delighted to announce this landmark transaction, which is
positive in multiple ways. Firstly, strong presence across the
healthcare eco-system is our strategic goal. We hold 23% market
share in hospital business and 35% market share in medical
insurance business, after this acquisition we will become the
largest pharmacy chain in the country with c.30% market share,
which should help us to grow our ambulatory business, where we hold
only 1% market share. Secondly, this transaction is earnings
accretive from day one and we expect to leverage on scale to
extract annual synergies of GEL 11.8 million at EBITDA level.
Thirdly, we will further diversify our revenues and the pharma
retail business is expected to contribute c. 30% of GHG's EBITDA
next year. Fourthly, with this acquisition we will be bringing on
board the best of GPC and ABC management teams in Pharma retail
business. Enrico Beridze from ABC will lead the executive team,
while David Kiladze's vision as a board member of the GEPHA will be
invaluable for the merged entity. We plan to keep both brands, as
they have a distinct positioning in two types of customer segments:
GPC for the higher-end customer segment and Pharma-Depot for the
mass retail segment. Among other new initiatives, we aim to
introduce a private label products and start contract manufacturing
next year. I look forward to working with the extended pharma
business management team to deliver our targets in this
segment."
Forward-looking statements: This document may contain certain
'forward-looking' statements. By their nature, forward-looking
statements involve risk and uncertainty because they relate to
future events and circumstances. Actual outcomes and results may
differ materially from any outcomes or results expressed or implied
by such forward-looking statements.
Any forward-looking statements made by, or on behalf of, GHG
speak only as of the date they are made and no representation or
warranty is given in relation to them, including as to their
completeness or accuracy or the basis on which they were prepared.
GHG does not undertake to update forward-looking statements to
reflect any changes in its expectations with regard thereto or any
changes in events, conditions or circumstances on which any such
statement is based.
Inside Information: This announcement contains inside
information.
Name of authorised official of issuer responsible for making
notification: Ekaterina Shavgulidze, Head of Investor Relations
About Georgia Healthcare Group PLC
Georgia Healthcare Group PLC is a UK incorporated holding
company of the largest healthcare services provider in the
fast-growing, predominantly privately-owned, Georgian healthcare
services market. GHG's leadership position is underpinned by
offering the most comprehensive range of inpatient and outpatient
services targeting the mass market segment through its vertically
integrated network of 35 hospitals and eight ambulatory clusters
(consisting of 11 district ambulatory clinics and 28 express
ambulatory clinics), as at 30 September 2016. GHG is the single
largest market participant, accounting for 23.0% of total hospital
bed capacity in the country, as of 30 September 2016. GHG is the
third largest pharmaceuticals retailer and wholesaler in Georgia,
approximately 15% market share by revenue, as of 31 December 2015.
GHG is also the largest provider of medical insurance in Georgia
with a 35% market share based on net insurance premiums earned and
approximately 208,000 insurance customers as at 30 September 2016.
GHG employed a total of c.12,500 people as at 30 September 2016,
including 3,140 physicians and 730 pharmacists.
For further information, please visit www.ghg.com.ge or
contact:
Nikoloz Gamkrelidze David Vakhtangishvili Ekaterina (Eka)
Shavgulidze
CEO CFO Head of Investor
Relations
+995 322 550505 +995 322 550505 +995 322 444
(5077) (4810) 205
ngamkrelidze@ghg.com.ge dvakhtangishvili@ghg.com.ge ir@ghg.com.ge
This news report is presented for general informational purposes
only and should not be construed as an offer to sell or the
solicitation of an offer to buy any securities
This information is provided by RNS
The company news service from the London Stock Exchange
END
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