Ascendis: CEO Mark Sardi and activists agree on path forward

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Ex-investment banker and current Ascendis Health CEO Mark Sardi has had his work cut out for him since taking the reins at the debt-laden healthcare business around eighteen months ago. Despite many of the underlying businesses performing well, the business has an unsustainable capital structure, amassing a debt pile of over R7bn. A recapitalisation agreement has been made with Blantrye Capital and L1 Health, with the lender consortium taking control of  the crown jewels, European subsidiaries Remedia and Sun Wave in exchange for Ascendis’ outstanding debt. Harry Smit, the representative for the Ascendis Activist Group was complementary of Sardi, acknowledging that business rescue would’ve been a far less favourable outcome. Sardi’s investment banking experience must’ve been integral in negotiating this deal, with shareholder approval the only obstacle remaining. – Justin Rowe-Roberts

Mark Sardi on his reasons for taking the helm at Ascendis Health:

When you look at it from the outside in, the balance sheet was a disaster. However, fundamentally the underlying business for the vast majority were good. There was one dreadful acquisition called Scitec, which was a sports nutrition business. For the large part, they are good businesses. The previous regime payed too much for them and structured them with too much debt. When your debt grows by your market capitalisation every six months, that is unsustainable. When you have good businesses, there is always the prospect of salvaging something, as long as the debt doesn’t run away. The secret is to cauterise the wound as quickly as possible.

Piet Viljoen on Ascendis Health: 

As Mark said, for the large part the group has very good businesses. The problem was the debt. As Mark has pointed out, there is something left for shareholders and there’s value there. You can’t buy any business with too much debt, you have to look at whether the underlying operating entities are able to stand on their own two feet.

Mark Sardi on the negotiation process:

We tried a number of different ways. You basically had to write a cheque for €400m, which was the debt plus the interest. We looked at leveraging some of our operating companies, the good businesses. We looked at selling certain businesses, putting in a convertible bond, doing a take private. We looked at merging certain of the underlying entities, gearing up the merged entities, keeping an equity stub. If you can’t come up with full cheque plus the interest, you don’t get the right to play. Unless the banks get their capital and interest, they say go and think again.

Piet Viljoen on whether it was a favourable outcome for shareholders:

I think so. As Mark said, when you sit with these guys you don’t have a lot of choices. I think where shareholders have landed up is a good place because you left with the South African businesses, which in their own right are good businesses. In other players hands, they could be worth a lot of money. The important news is that the pressure is off, Ascendis is not a forced seller anymore. So now you can sit back, take your time and negotiate a good transaction, if there is one. I’m almost hundred percent sure there will be offers for these businesses and you can negotiate decent prices for them. For shareholders, I think this is a fantastic deal.

Activist investor Harry Smit on the deal proposed by management: 

We would never be able to satisfy everyone – business rescue was a very bad idea although we do not think it would’ve left shareholders with nothing. We do feel the deal on the table is a much better transaction than business rescue and we’ll be supporting the proposal.

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