Georgia Healthcare Group PLC announces that it has signed a Sale and Purchase Agreement , subject to competition agency approval, to acquire JSC ABC Pharmacia , the fourth largest pharmaceutical retailer and wholesaler in Georgia, from certain private shareholders .
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 underpinsGHG’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.
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 shareholdersand 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.
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.
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 million1) 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.
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 1st 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.