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An interview of Stephen Saad, CEO of Aspen Holdings.

ALEC HOGG: Today I had a fascinating podcast discussion with Stephen Saad. He’s from the pharmaceuticals group Aspen, which is an amazing success story. It started as a one-man show by Saad just about 10 years ago. It’s now worth almost R35bn. Today Saad took the wraps off an acquisition of a generics operation which, together with Aspen’s exciting businesses there, will make Aspen the biggest generics maker in Australia, with over a quarter of that market. It’s in the same position here in South Africa. Aspen paid almost R6bn for the distressed generics operations of a major Australian pharma group called Sigma. In this highlight of today’s podcast with Saad, he explains why he believes Aspen won’t repeat Sigma’s mistake.

STEPHEN SAAD: It’s hard to make a comment around what Sigma’s mistake or mistakes were, but if I have to say something, they made a big acquisition which probably didn’t work out for them as they had hoped. So we’re not paying the same pricing that they paid for those acquisitions and I do think that we have a very good knowledge base within Aspen of how to succeed in the global market, whereas Sigma was very insular in the Australian market. We do understand pricing in markets like India, South Africa – and the developed markets as well. So I think we have an expertise and we’ve got a lot of synergies that we’re hopefully going to extract. It’s hard for us to quantify them now, Alec, because those synergies depend on us talking to a lot of people to make sure what we’re think we can do, we really can do. But of course our due diligence has really been limited largely to a electronic database rather than being able to actually deal with individual people on the ground.

ALEC HOGG: You’re unusual in many ways – well, yourselves and perhaps, Investec – in doing well in Australia. Many South African businesses that have gone there have struggled. What is the difference, why have you guys cracked it?

STEPHEN SAAD: I think our Aspen model has never been a prescriptive model, so we’ve not said that because it works in South Africa, it must work in Australia or in Brazil, for example. So we try to understand the market, the market dynamics, and then see what we’ve got to match that. I think a lot of other people have said, this is our model and we’re going to make it work there. I’m not talking about South African companies only; I’m talking about some of the bigger companies that I’ve noticed, even in, say, Latin America and in Australia. People try and adjust the market for their model and it’s not necessarily the right way to look at it. I always look at the market first and then we adjust our model to see that it can fit in there. We went in Australia, we went niche. As much as we wanted to throw out a huge generic strategy because we’re strong with that, we didn’t think we could crack it because companies like Sigma were so strong and had had the pipelines into it. So we didn’t push – we went into niche generics. This has given us an opportunity now to roll out the broader Aspen model in Australia, which we for nearly ten years have not seen the opportunity.

ALEC HOGG: Stephen, the late Graham Beck, when he died just over a week ago – I investigated his business success and he was a hugely successful entrepreneur who did well by buying businesses cheap. You seem to be following a similar kind of model.

STEPHEN SAAD: I think that a lot of the Aspen success story has been more than just buying businesses cheap. We’ve had the firepower to turn what is sometimes a spotty dog into something that looks a little bit more fashionable. So, if you look at a lot of the Aspen product growth has been driven my organic pipelines, being able to get licensing deals, driving manufacturing strategies, first to market with anti-retrovirals etc, etc. But it is important – the big bets you take on acquisitions, it’s no use paying a fancy multiple if you can’t get a return on it. I suppose, Alec, it’s always been a philosophy – because we started with such a small business and I started as a sole operator- that I’ve never looked at something and asked is this the right P/E to pay or not the right P/E. I don’t worry about things like that. I spend my time saying how quickly can we repay the money on this money that we outlay. It’s as simple as that. Are we going to get paid back for this? I think this is one that, if we do the right moves, we’ll really get paid back on this investment.

ALEC HOGG: What kind of time are you putting in your own mind for that payback?

STEPHEN SAAD: Obviously the first year is a year in which we need to settle things down. But I think that you should see in year two some significant uptake in our returns.

ALEC HOGG: That’s Stephen Saad, the chief executive of Aspen Pharmacare. It really is a fascinating story. If you are having a look for a South African company that could be following in the steps of SABMiller and making an impact internationally, this might just be the one. The company was born in Durban just over a decade ago, and is expanding aggressively into the international markets as Stephen was saying in another part of that discussion. One of the big influences there in this transaction was none other than Simon Marais, the former chairman of Allan Gray here in South Africa, and now the chief investment officer of Orbis in Australia. Simon Marias gave the thumbs-up to the transaction and no doubt he is hoping that the Allan Gray guys here, who are shareholders in Aspen, will benefit as well.

Go to Moneyweb South Africa.

Content Last Reviewed On July 16, 2018

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