Becoming a billionaire: Ascendis founders have joined the exclusive club

I first met the Coast-2-Coast duo Cris Dillon and Gary Shayne a few years back at the Berkshire Hathaway AGM in Omaha. At the time they were hard at work putting together what is today Ascendis Health, one of the hottest of the JSE's recent listings. We renewed our acquaintance at the Warren Buffett show earlier this year, recording a fascinating interview in the storeroom of an Omaha restaurant (the only quiet place we could find). Their efforts have paid off. Coast-2-Coast still owns 53% of Ascendis, a stake that's now worth over R2bn. Which means that the partners are bona fide billionaires – at least in South African Rand. In Ascendis CEO Karsten Wellner, Dillon and Shayne picked the right man to handle the tough side of turning their strategy into a profitable operating entity. As Wellner explains in this interview, some of the country's major banks have now also joined the team. – AH .ALEC HOGG: Welcome back to Power Lunch. Ascendis Health has secured R1bn funding package so that it can fund additional growth. Chief Executive Karsten Wellner is with us in our JSE studio. Karsten, it is an interesting story – Ascendis. When you listed, there was a lot of…not scepticism, but you were not really taken to the market's heart but in the last six months, the share price going from R9.50 to R16. And now you secured some more funding to continue on your acquisitive trail. Why do you think it took so long? You were listed for about six months before people woke up to the opportunity..KARSTEN WELLNER: I think the market was waiting to see whether we delivered to our promises. We made some promises in the pre-listing statement. At that time, we also talked to the market and asked 'is there even time for a corporate bond', and the market said 'wait. It's maybe too early. You just listed in November. Wait for two or three years. Bed your acquisitions down. Bed your business down'. However, we had the feeling that our business model is so strong and our business case/our strategies are so sound that actually, we said 'let's try to get a corporate bond'. Standard Bank actually gave us R450m bridge-to-bond facility, so it was Standard Bank and Sanlam one year ago, in May last year. It was always seen that after one/one-and-a-half years, we'd change it to a bond, so they believed in us at that time. Now, with the R2bn DMTN, which was listed now with the JSE….ALEC HOGG: DMTN?.KARSTEN WELLNER: Domestic medium-term notes program – sorry. We listed that with the JSE, so we can draw up to R2bn without further approval by the JSE, and we now do R400m plus R660m of working capital facilities with the major banks. When we talk to them, you go through the credit committee meetings, and you really need to convince the credit committee meetings, but we could convince them. They did a very diligent process in going through our numbers..ALEC HOGG: But many people have ideas and dreams. I would like to consolidate a fragmented industry. We saw Pieter van Zyl just now from York Timber. They would love to be able to get this fragmented industry together, which is something along the lines of what you're doing, but they're not getting any money. You're getting plenty..KARSTEN WELLNER: Yes. I must say we are proud of this..ALEC HOGG: How? What's the story?.KARSTEN WELLNER: The story I think, is that they believe in our performance. They see that what we promised one year ago, when we went to the market: acquisitive growth, organic growth, and synergistic growth – we delivered in all three areas. We ticked all three boxes. We over-delivered our numbers, so that also helped. In an environment where that market after the African Bank story…of course, it's difficult to access. However, if you convince the Credit Committees from Standard Bank, FNB, and Nedbank – Standard Bank and Nedbank being the lead banks. Then FNB came on-board. On our bond, its Futuregrowth, a subsidiary of Old Mutual and on top, is Sanlam so these are top institutions. If you convince all the five credit committees of these banks, it looks as though our business model is sound and we have proven this with our annual results..I was on your show a few weeks ago where we could present our results, which were very nice according to the expectations – even a tick higher. I think you need to keep to your promises and that's what's behind the story..ALEC HOGG: If you go back a little though, before your listing: had you identified these companies that you've now acquired in your acquisitive growth story?.KARSTEN WELLNER: Some of them, yes and some of them, not. Acquisition process sometimes take very long. For example, we acquired a sports nutrition business, called Evox, which is presently the second biggest in the market here in South Africa. It took us three years to convince the seller to sell to us, so sometimes you have to have a bull terrier instinct..ALEC HOGG: Why did they sell to you? How did you convince them?.KARSTEN WELLNER: The major reason for this was that the guy couldn't get more working capital. He wanted to lift his business to the next level and USN (the market leader) did this by internationalising, getting access to new funds, and with the access to new funds, being able to internationalise. The gentleman who had been running Evox had done this very successfully and created a great South African brand, but he hadn't internationalised yet and I think he came to his limit of working capital and his limit of expertise. He needed a little bit more corporate expertise to help him to go to the next step..ALEC HOGG: Why you? Why not somebody else? Why not go and talk to the credit committees?.KARSTEN WELLNER: It's a good point. We're sometimes asked this question and I think the reason is that our acquisitions team around Coast-to-Coast where we've actually outsourced our acquisitions work, is very focused on doing acquisitions work and the Ascendis team is very focused on steering the acquisitions work, but focusing mostly on operations..ALEC HOGG: So Chris (Dillon) and Gary (Shayne), the Warren Buffett and Charlie Munger lookalikes (not physically, but in the way they think) are the guys who go and do the discussions and say 'this is what we can offer you', almost like what Berkshire-Hathaway tries to offer..KARSTEN WELLNER: Yes, we actually give the strategy. We'd say 'we would like to invest in this company' and then they would screen the markets – sometimes for years. I remember another company we bought, a very successful one – Solal. Solal was very strong, had a high LSM; a complimentary business like nutraceuticals and vitamins, and they're very strong in Dischem in South Africa, as well as in Clicks and the other heath corners in supermarkets. It took Gary two-and-a-half years of constant negotiations. Sometimes they wanted to sell 51%, then they wanted to sell 70%, and then they want to sell another majority stake, so you have to be diligent and not overpay. I think that's also important. Even being a listed company, people see we still stay humble, but at the same time, we're giving these entrepreneurs a base where they can grow their business and focus again on their strengths..ALEC HOGG: What is Coast-2-Coast's stake now?.KARSTEN WELLNER: Fifty-three percent..ALEC HOGG: So they're still the controlling shareholders..KARSTEN WELLNER: Yes, they're still the controlling shareholders..ALEC HOGG: You run the business. They do the acquisitions and it's a marriage made in heaven so far..KARSTEN WELLNER: It looks like it and it works for us. We are very happy with that..ALEC HOGG: Karsten, it's good talking with you as always. Karsten Wellner is the Chief Executive of Ascendis Health. I can tell you this: when I was at Berkshire-Hathaway earlier this year, I did an interview with Gary and Chris from Coast-2-Coast and they told us the strategy at that point in time. You could have bought the share at R9.50. They're sitting at R16.00 now. Who knows if that's the end of this road? Somehow, I don't think so.

Becoming a billionaire: Ascendis founders have joined the exclusive club

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