Good medicine – Aspen’s epic value unlock

Aspen Pharmacare’s 2025 annus horribilis was well publicised, but in the dying moments of an awful year, the group announced an unsolicited offer for its businesses in its Australia, New Zealand and other Asia Pacific (APAC) regions (excluding China).

The offer is on a cash-free, debt-free basis and came from a private equity fund in Australia. It appears to be all cash-based with minimal conditions attached.

What is unique about the offer and sent Aspen’s shares soaring in the thin festive trade was its price tag: Au$2.37 billion or the rand equivalent of about R26.5 billion.

Aspen share price

Aspen’s APAC (excluding China) regional segment produced R7.8 billion in revenue (around 18% of the group total) and R2.5 billion earnings before interest, tax, depreciation and amortisation (Ebitda) – approximately 26% of the group total – in the year to June 2025, while the cash offer of R26.5 billion is (even after Aspen’s Christmas rally) approximately 51% of Aspen’s entire market cap (this ratio was closer to around 60-70% pre-rally).

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Just that math implies likely more upside in Aspen’s share price from here.

While Aspen trades on an enterprise value (EV)/Ebitda of approximately 8.5 times, at a 40% discount to its book value (which includes the APAC segment), this offer values its APAC business at approximately 10-11 times EV/Ebitda and at an around 20% premium to its book value.

Also, Aspen’s woes have been compounded by high debt levels in the group.

Specifically, the group last reported net debt of approximately R30 billion. An inflow of R26 billion (before tax is taken out, though) will go a long, long, long way to basically entirely degearing the group.

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Phrased another way, while Aspen may be selling R1.6 billion worth of its group profits with these businesses, if Aspen’s R30 billion debt is running at a cost of close to 10% per year, the degearing itself will save Aspen around R1.6-2.6 billion worth of finance costs!

It will also leave it with minimal debt on its balance sheet, about three-quarters of the group’s profits, and a share price that remains on a low valuation (lower than multiples that outsiders were willing to pay for a large chunk of the group).

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Furthermore, the conditions in this deal are quite simple (usual types, including regulatory and shareholder), the consideration is straight-up cash (no funny warranties, guarantees, earn-outs, and so forth), and these businesses largely had their own management and regulatory platforms in place – thus making the separation relatively simple, inexpensive and low-risk for Aspen shareholders …

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Contrast this with another recent deal (also announced over the festive quiet period) where AfroCentric is selling its pharma interests to focus on its core business and degear its balance sheet.

AfroCentric is selling this business at what appears to be below book, a relatively low multiple, with potentially messy earn-outs before it gets its cash over multiple years.

AfroCentric share price

Aspen’s unsolicited exit of its APAC business is clearly quite an epic value unlock and exactly the medicine the group needed to demonstrate the value of its underlying businesses.

Now we just need to see utilisation of the group’s expensive manufacturing facilities ticking upwards …

* Keith McLachlan is CEO of Element Investment Managers. 

* Portfolios managed by McLachlan may hold Aspen shares. 

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