Alternative medicine draws private equity investment

Business finance and its availability to the right investment opportunities are healthy in South Africa as evident from a string of recent Private equity investments in the pharmaceutical industry. In recent months, two local private equity firms have made large investments in this lucrative market — one in complementary and alternative medicines and the other in the generic HIV/Aids drugs market.

Investment opportunities in business plans from a wide variety of industries have been attracting interest from investors looking fro high returns on their money. Businesses both large and small have been on the receiving end of this phenomenon and the trend sees no signs of slowing down any time soon.

The alternative medicines market in SA has an annual turnover of R3,5bn , according to the Vitamins & Dietary Supplements Report.

For private equity company Coast2Coast, the acquisition of homeopathic company Natura, as well as Bioter Health and its sister company Consulting Microbiological Laboratory (CML), is part of a strategy to build and list a branded consumer goods company with annual after-tax earnings of R100m by 2011.

Coast2Coast subsidiary Bounty Brands expects to generate about 40% of its turnover through its health division .

Bioter Health and CML manufacture nutritional supplements. Their combined turnover is R50m/year.

Natura, which produces popular products like Rescue Remedy and Arnica, is projected to turn over R100m in 2010.

“The complementary and alternative medicines industry has shown significant year-on-year growth, with consumers turning more regularly to self-medication and health maintenance,” says Coast2Coast COO Cris Dillon.

The three companies acquired by Coast2Coast also supply about 400 homeopaths in SA and produce house brands for retailers.

Bounty Brands plans to become the largest complementary health products company in SA.

“This is a highly fragmented industry,” says Dillon. “There are more than 400 players, many of which are family-owned. Of these about 30 are large players.

“Consolidation in this market is inevitable, particularly as government is considering tightening regulations in this market.”

The high-growth nature of the pharmaceutical industry also drove private equity investor Capitalworks to acquire a stake in Quality Chemical Industries in Uganda. It manufactures combination therapy anti retrovirals (ARVs) and anti malarials under licence from Cipla India.

“There is a great need for high-quality, affordable ARVs in Africa,” says the fund manager for Capitalworks Partnership Fund, Beth Mandel.

The Quality Chemicals plant is one of three pharmaceutical producers in Africa to receive good manufacturing practices certification from the World Health Organisation.

As a least-developed country as defined by the UN, Uganda is exempt from the agreement on trade-related aspects of intellectual property rights .

“This allows companies based there to produce patented products without restriction ,” says Mandel .

With the recent certification from the World Health Organisation, Quality is marketing its triple-combination ARVs and anti malarials to NGOs within Uganda and beyond.

“We believe demand for these two products could keep the factory running at capacity, but there is always an opportunity to move into other, related products — to treat tuberculosis, for instance,” says Mandel.

Capitalworks Partnership Fund has other investments outside SA — in MTN Nigeria and in the Reclamation Group.

Much of the original capital raised, about R500m, has been invested in these three companies, but Capitalworks may raise more capital , Mandel says .

Similarly, Coast2Coast, which is invested in 10 companies, plans to raise R200m to add to Bounty Brands’ portfolio.

These are not the only two firms active in the market but they have been so active recently that their investments have drawn attention from entrepreneurs and business owners alike. An attractive exit strategy is a key element of most business plans and from an entrepreneurial point of view, this certainly is attractive.