ATA Capital backs management buyout of medical device firm RCA

 ATA Capital backs management buyout of medical device firm RCA

Private equity firm ATA Capital is supporting a management buyout (MBO) of Respiratory Care Africa Proprietary Ltd (RCA) as a part of an asset divestment and restructuring initiated by South African healthcare group Ascendis.

Ascendis, which was spawned by private equity firm Coast2Coast, had reached a debt swap agreement earlier this month with its key lenders to sell its European business to Blantyre Capital and LetterOne.

It has now inked an agreement to sell wholly owned arm RCA for ZAR450 million ($30 million) in cash. This will be adjusted for any surplus or shortfall in net working capital in excess of or below ZAR160 million and any net debt picked up by the buyer.

RCA supplies respiratory, monitoring, radiology and other medical equipment and consumables used to treat patients at hospitals and homes. It also provides technical support and services for the equipment. The company has been a key supplier of ventilators and oxygen equipment to hospitals since the onset of COVID-19 last year.

RCA was established in 1998 and earlier focused only on critical care, neonatology and pulmonary function testing. Ascendis acquired RCA in June 2014.

ATA Capital is now backing RCA’s management team, which is executing an MBO. The PE firm is investing from its latest fund, ATA Capital III. The deal also has financing support from Absa Bank.

The deal is expected to be completed by September.

Ascendis’s medical devices business is led by Chris Swanepoel, who joined the group in 2009 and has over 26 years of experience. He has also worked for Adcock Ingram, B Braun and Brittan Healthcare. He was also a co-owner of the interventional business that was sold out of Brittan Healthcare and was a shareholder in Surgical Innovations when this business was sold to Ascendis in 2014.

RCA posted a profit after tax of ZAR53.6 million for the six months ended December 2020 as against a loss ZAR868.1 million for the 12 months ended June 2020. Its operating profit for the first half of 2020-21 was ZAR143.8 million as against a loss of ZAR 776.9 million for the entire 2019-20.

Ascendis divestments

For Ascendis, the deal would mark another move for group recapitalization to reduce its huge debt pile.

Earlier this month, it had agreed to sell its European business to Blantyre Capital and LetterOne. These two investors had picked up a majority of Ascendis’ outstanding debt pile, estimated to be €447 million, earlier this year. This helped them gain a say in the strategic direction of the firm.

They will now swap the debt for a 100% stake in Ascendis’ European business arms Remedica and Sun Wave Pharma, its two key businesses and among the most profitable parts of the group.

Remedica is a Cyprus-based manufacturer of generic pharmaceuticals. Sun Wave is a Romanian sales and marketing company for niche nutraceuticals and over-the-counter (OTC) products. The two investors will also get a 49% stake held by Ascendis in its Spanish pharmaceuticals and OTC medicine firm Farmalider.

After the asset divestments, Ascendis will retain all the legal entities that comprise the medical devices (barring RCA), consumer health and pharmaceutical businesses, collectively known as its South African assets. It will also have access to a new drawdown facility and a term loan to ensure that it has adequate liquidity over the next two years.

Ascendis built its business through a string of acquisitions that ended up piling a huge debt on its books, necessitating a business restructuring including asset divestments.

The company had previously sold Afrikelp, Efekto and Marltons businesses in the biosciences division, and the direct selling unit in 2019-20. It is now also selling four other biosciences units to Agricultural Biosciences Proprietary Ltd for ZAR85 million ($6 million) subject to adjustments.

Vivek Sinha

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