Georgia Healthcare Group PLC to acquire JSC ABC Pharmacia

Posted: 21st November 2016 08:33

Georgia Healthcare Group PLC announces that it has signed a Sale and Purchase Agreement ("SPA"), subject to competition agency approval, to acquire JSC ABC Pharmacia, 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.

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."

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