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Demand for healthcare services in Africa is creating plenty of opportunities for mergers and acquisitions. Michael Dynes performs the check-up

[AJ frequently overlooked

A dimension of the African post-millen ni um growth phenomenon is the burgeoning ma rke t for

healthcare, both products and services, which have tended to be somewhat overshadowed by the robust growth witnessed in other key areas such as minera l resources, telecoms, financial services a nd consumer durab les.

But wi th the African middle class t ripling in size since the 19805, and fo recasts that it wi ll triple again in the next 15-20 yea rs, healthcare is now expected to delive r so me of the strongest returns of a ll the sectors. which has prompted Merrill Lynch to elevate health care into the top five most promis ing investment areas on the contine nt.

The growth in demand for pharmaceutical products [in Africa] is second only to that

of China

Valter Adao, Healthcare and Life Sciences Director at Delaitte, tells Africa ilwesto r: "The contribution of health care to the continent's gross domestic product is still very low. In South Africa, it is in the region of8%-9% and in many other African countries it is we ll below the 5% recom me nded by the World Health Organisation (WHO). But the sector has been growing in double digits. Why?

"Afr ica is s till host to a disproportionate share of the world's d isease burden," Adao continues, "but the growth in the size of the middle class has triggered a su rge in demand for health care products and services. As with increased demand for consume r durables, it is the rising disposable incomes of the new midd le class that is driving this. It is not just happening in South Africa, it's an African-wide tre nd. The growth in demand for pharmaceutical products is second only to that ofehina. At present, it's heavily reliant on imports so there a re huge opportunities here for import substitution," he says.

Accord ing to WHO, Africa accou nts for 11% of the world's population, bears 24% of the global disease burden a nd accou nts for 1% of world healthcare spending. But with the African middle class now accounting for up to a thi rd of the conti nent's one billion people, and average growth for the region forecast to be in excess of 5%, mergers and acqu isitions are accelerating as healthcare providers position themselves to capture the rising health spend.

Merieux NutriScience has bought a majority stake in Swift Micro Laboratories, with a view to expa nding its Africa operations. The Lith a Healthcare Group has acq uired Pharmaplan fro m Canada's Paladin Labs for ZAR590 million (roughly US $59m). while Ascendis Health has bought Chempure for an undisclosed sum, Signalling its intention of becoming a verti cally integrated player in the South African healthcare value cha in. india's Cipla has also just received approval fo r its Cipla Medpro South Africa acquisition.

Moreover, the deal p ipeline looks equa lly rob ust. Aspen Pharmacare Holdings, a supplier of branded and gene ric drugs to more than 1 50 countries, with operations in Sou th Africa, Ke nya, Tanzania, Uganda and Nigeria, and which produces 20 billion tablets a year worldwide, is planning to invest more than ZARI billion ($lOO.2 m) in its four South African manufacturi ng sites, a nd is looking for new partnerships in Afr ica. At the same time, Adcock Ingra m, Litha and Mediclinic a re a lso on the acq uisition t rai l.

"Aspen and Adcock are the biggest makers and distributors of generic drugs in Afri ca, followed by US multinational Pfize l~ and French pha rmaceutical giant Sonofi;' Adao says, "but most of the world's big players are now turning their attention to Africa. The trend is for companies to locate in South Africa, where the business climate is good, and export north. But that will alter as East and West African economies mature, and as manufacturing increasingly locates in those regions. It w ill not happen overnight but it has already started," he says.

Last year, Indian generic manufacturer Cipla an nounced that it had raised $SOm to expand output at Uganda's Quality

20 131 JULY.ALX3USTj 41 B afrlcalnvestor

Business - HEALTH CARE INVESTMENT

Chemical Industries (QC I), a s tate-oF-the art pharmaceutica l manufacturing plant in Kampala, from six million to 24 million tablets a day_ London-based TLG Capital. one of the more entrepreneurial investors playing a role in the African healthcare sector, saw the opportunity and invested in the QCI expansion project.

There are huge opportunities here for

import substitution

TLG Capital's Managing Director Zachary Latif tells Africa investor: ''Africa's rising middle class is redefini ng the investment dynamics on the con ti nent. We tend to look where the compelling investments are. These growing markets will need to buy increasing drugs and treatments. Africa is still catching up with the rest of the world but demand for hea lthcare is growing at a very strong rate. The outlook for Uganda's QCJ facility is very bright."

TLG Capital has a lso inves ted in Liberia's Snapper Hill Clinic - the only facility to survive the country's two civil wa rs - and the Swedish Ghana Medica l Centre in Accra, the first European standard ca ncer treatment facility in West Africa.

"Healthcare is a core focus for us," Latif says. "We are constantly reviewing opportun ities in the region. Liberia is a very ea rly stage investment compared to Ghana or Uganda. But Africa is such a vast frontier market that it is difficult to bump up against competitors - there are so few of them," he adds.

Efforts to capture a greater share of the generic med ication market through import substitution are also underway in other parts of the continent. In South Africa, the Swiss pharmaceuticals manufacturer Lonza has entered into a jOint venture with the government to build a new antiretrovirai manufacturing plant in Mamelodi, specifically intended to reduce the country's trade deficit in pharmaceuticals.

South Africa is the world 's largest market for antiretrovirals, accounting for 20% of global demand. As a result, pharmaceutical imports a re the fifth largest contributor to South Africa's overall trade deficit. Ironically, South

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Afri ca has the second largest reserves of fluOl'spal~ the active ingredient in HIV· Aids medicatio n, after China.

So w hy import when you can produce locally? Work on the new ZAR1.6bn ($157.6m) Ketlaphela antiretrovirals plant is due to start thi s year; with production expected around 2016. If successful, KetJaphela is then expected to expand into the production ofTS and malaria medications, a precedent that many other African countries are likely to emulate.

South African Trade and Industry Minister Rob Davies says that the intention of the Ketlaphela plant "is to create secur ity of demand for domestic production, attract foreign investment and to further industria lise the economy." The government has also announced its intention to draw up a list of some 70 medications that it will buy if they are produced loca lly.

Africa's rising middle class is redefin ing the investment dynamics on the continent

"There is little doubt t hat quality sta ndards and high vo lumes can be achieved. The challenge will be to find a way to distribute these products across the continent," Davi es adds.

The International Finance Corporation (IFC), the p r ivate sector le nding arm of the World Bank, forecasts a greatly increased demand for investment in African hea lthca re over the next decade, targeted at providing 500,000 new hospital beds, increased pha n naceutical product ion and distribution facilit ies, a long with the training of 90,000 phys icians , 500,000 nurses and 300,000 community worke rs.

The IFC and its partners are now seeking to mobilise $lbn in investment and advisory services over the next five yea rs to foster a step cha nge in African healthcare.

Lars Thunell, former Chief Operating Officer of the IFC, says, "This is a chance to increase access to healthcare for millions of Africans. Meeting th e demand can deliver strong financial returns and have a n enormous development impact." fIj

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African M&A deals in the medical and medical pharmaceuticals sectors - 01 January 2012 to 20 June 2013

Announcement Target dominant Bidder Seller dominant Deal date Target geography Bidder dominant Seller geography value(US

geography $m)

28·Feb·13 Cipla Medpro South South Africa Cipla Ltd India 548

Africa Lid

Gla~oSmithKline

15·Aug.12 Pic (Portfolio of Australia Aspen Global Mauritius GlaxoSmlthKline Pic United Kingdom 271

25 Pharmaceutical Incorporated

Products)

Emirates Healthcare Medi·Cllmc

27.Aug·12 Holdings limited United Arab Emirates Corporation Ltd South Africa Varkey Group Limited United Arab Emirates 197

(44.39% Stake)

Max Healthcare life Healthcare

15·)an·12 Institute Limited (26% USA Group Holdings South Africa Max India limited India 100

Stake) Limited

lO·Jul·12 Cosme Farma India Adcock Ingram South Afnca 92

Laboratories limited Limited

2Heb·12 Pharmap!an Pty Ltd South Afnca Litha HeaUhcare South Africa Paladin Labs Inc Canada 77

Group Limited

FIL Capital Headland Capital

Trivitron Healthcare Management Partners Ltd; ePlanet

31·Oct-12 Private limited (40% India (Mauritius) Limited; India Capital; and HAV2 Mauritius 7.

Stake) and Fidelity India (Mauritius) Ltd

Capital Partners

RTI Health Sciences;

RTI Kenya limited; RTI Imperial Holdings RTI Group (Ply)

IRSep·12 Ghana Limited; and South Africa Limited South Africa Limited South Africa 61

Fuel Africa Logistics

(Pry) Limited

27·Mar·12 Sutures India Private India CX Partners India Evolvence India Life Mauritius 39

Limited (40% Stake) SCiences Fund

Egyptian Company for Hikma United

9·Jan-13 Pharmaceuticals & Egypt Pharmaceuticals Kingdom 22

Chemical Industries Pic

14-Mar-12 Bokamoso Pflvate South Afnca lenmed Health South Africa 10

Hospital Group Ltd

Amalgamated Pharmed

25·Jun-12 Pharmaceuticals (Pty) South Africa Pharmaceuticals South Afnca 8

Ltd limited

28·May-13 Biopharm Algena (49% Algeria Mediterrania Spain

Stake) Capital

14-Jul·12 Assene·Laborex (60% Nigeria Eurapharma SA France

Stake)

Source: Ai/Mergermarket

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