Ascendis Health has been snaffling up companies since it came to market in November 2013. Itself a private equity creation, the firm has now inked its first major international purchase - an initial 49% stake in privately owned Spanish pharmaceutical firm Farmalider, for R210-million. The deal advances Ascendis's longer-term plan to net 30% of its revenue from international sources, but market reaction has been indifferent. BT asked Ascendis CEO Karsten Wellner ...Why the staggered approach to acquiring Farmalider? Forty-nine percent now, then 31% in 2018, and the last 20% in 2020? Also, this chunk is at a price-earnings multiple of only nine times earnings - that's quite cheap ...story_article_left1A lot of pharmaceutical deals internationally are on 15 or 16 multiples. We didn't go into a public bidding process, and I think we could convince them that we are rather a partner than an investor who just wants to take all the cash out and get the profit. So it's very much a partnership model.I've been working for more than 20 years in international pharma markets, and when you do acquisitions you can go quite wrong, especially in developing markets - it can be a big, fantastic story and it can be a disaster. That's why we wanted an ownership model over certain steps and that suited the seller because he is mid-50s, he wants to work five to seven further years and he has a lot of great projects.We have a blocking minority right, so if the business is not performing we can take over management control even if we don't have more than 50%. He agreed to that because he's very confident that he'll achieve good numbers. We said: "OK, for the next 31% and 20%, we'll give higher multiples than we're paying now if you achieve certain targets."With that we could, say, feed his entrepreneurial instinct, which we didn't want to stifle, and that looked like the perfect match.Who is the seller?José Luis Berenguer and some of his partners. He is very much aligned with our vision to add some products from our side and take his products into Africa and Southern Africa ... And because of his business model he can very quickly open for us not just one market in Europe - like North Spain - but several markets. For example, he is negotiating with two or three companies for an entry into several European markets.Due to the contacts he has - and his very good market position in Spain - now Teva, Novartis, Sandoz, and so on, they are prepared to use him for their European activities. So if he licenses out a dossier to one of these companies, they take them into Europe. In Europe there's a thing called a "multirecognition procedure" for clinical dossiers, so if you're registered in one country, you can have a registration in all European countries, and that very quickly opens up the doors if he has the right partner who has sales forces in all these markets.Will you, as the major shareholder, be required to put in capital for their European expansion?No, we won't. They get a lot of European funding on very low rates - they have Spanish government funding where they pay 0.5% interest rates for grants, or government loans which don't have to be paid back before five to seven years.They are highly cash generative. On top of that, our payment in January 2017 we can fund locally.Is there a cap on the price of the rest of the shareholding?story_article_right2Yes, there is a fixed cap in case [Farmalider] shoots out the lights, but it's not public knowledge.There's also one important aspect [of the deal] - they have a little manufacturing plant which is running at three shifts, seven days a week. As the Spanish market went through quite a recession, the labour costs in Spain [became] very competitive in Europe. So competitive, in fact, that they can get to production costs on the level of India. I couldn't believe it ... but for us it was quite interesting from a value-add point of view.How healthy is the Spanish pharma market?The Spanish pharmaceutical market is still going down - it went down from 2010 to 2014 by 3% to 4%. When we look at the generics business we are in, that has increased by 13%, compounded average growth rate, over five years [which is] quite immense. The over-the-counter market was flat from 2013-14, but it's now bottomed. And why we think we don't have to be worried about this is because they go into very lucrative niches. They look at first-generation generics where the margins are still good, and they find line extensions on the packaging, or on the dosage. Niches [where] big pharma companies don't want to invest or put manpower.There's hardly been any reaction from the market. Are you a bit disappointed?Yes and no. Yes because it's a game-changer for us and I would have expected the market to react a little bit more. I think some in the market are sceptical of us [but this deal] shows we are sticking to our promises. We are in a closed period at the moment, and I think the market is waiting for our full-year results. In the end, the deal is economically fantastic, and makes strategic sense...