Ascendis Health has had a rough few months as it battles with a debt hangover after an aggressive acquisition strategy - at a time when it can no longer rely on its main shareholder.
However, the company may have found some relief in a recent unsolicited offer for its Cyprus business as it battles with net debt of R4.4bn with a maximum earn-out of R1.3bn over three years.
The health and wellness company, which produces brands such as skin-care product Nimue, probiotic Reuterina and cold and flu medications Sinucan and Fluend, as well as medical devices and animal health products, has seen its share price tumble by more than 58% in the past year and more than 43% since it released its annual results in September last year.
Founded by Karsten Wellner in 2008, Ascendis began its foray overseas in 2015, buying four businesses in Europe: Remedica in Cyprus, Farmalider in Spain, Scitec Nutrition in Hungary and Sun Wave Pharma in Romania.
CEO Thomas Thomsen, who took over from Wellner in March last year, last week remained mum on the potential deal, saying Ascendis could not comment beyond the cautionary statement it released.
"We do undertake to keep stakeholders updated on developments relating to the offer received for Remedica Holdings and this will be done at the appropriate time via Sens," said Thomsen.
The company bought Remedica for R4.4bn in 2016. It had a rights issue in November 2017 to raise funds to settle what it owed for the purchase. Remedica contributed 17% of Ascendis's R7.7bn total revenue for the 2018 financial year.
Reuben Beelders, a portfolio manager at Gryphon Asset Management, said: "Ascendis is sadly just another company that listed and has attempted to grow by acquisition, using overvalued paper [that is, shares].
"The number of shares in issue has doubled over the past four years. This in my experience has never been a good sign."
He likened Ascendis's troubles to those of Aspen Pharmacare, which believed it could use its scrip to buy growth.
Companies that buy businesses overseas often overpay and also have difficulty integrating their new acquisitions, he said.
However, Beelders said Ascendis's management was doing the right thing by focusing on selling acquisitions and working on re-energising the South African businesses.
Besides the Remedica purchase, Ascendis bought Scitec for R2.9bn and a stake in Farmalider for R210m in 2015.
Last year the company began selling its sports nutrition business in SA, its marketing business and its Johannesburg-based pharmaceutical manufacturing plant.
The initial support Ascendis's main investor, Coast2Coast Investment Holdings, gave it is faltering. Coast2Coast began to sell its shares in Ascendis late last year and has so far sold shares worth R231m, of which R140m worth were sold last week.
Independent analyst Anthony Clark said Coast2Coast had funded a large part of its private-equity growth through debt.
He said because Ascendis's shares are its only "liquid" and saleable asset, Coast2Coast has had to sell shares to meet its obligations.
At the release of the Ascendis results in September, Coast2Coast had a 28.3% stake in Ascendis, making it the biggest shareholder at the time, it currently has a 20.3% shareholding.
Coast2Coast did not respond to requests for comment, but has said it was confident about Ascendis's strategy.
Other analysts remain sceptical about Ascendis.
Asief Mohamed, chief investment officer at Aeon Investment Management, said: "To put it to you quite plainly, the product they were selling was these powders.
"I don't know if you ever go into a Dis-Chem and you see all these types of powders to try to build up your body and muscles, and I always thought that was absolute nonsense," he said.
Through its Scitec Nutrition business, Ascendis sells supplement powder brands including the Big Bang Workout stimulant, Hot Blood food supplement and 100% Whey Protein.
Mohamed said: "Maybe that's just me, but I see it used to take up a whole aisle in a Dis-Chem or a Clicks, but now it's significantly reduced. They were selling stuff that wasn't value-added, so that's why we didn't like it."
Mohamed said he believed that Ascendis had generally overpaid for its overseas businesses and he didn't think it had a good management team.
Clark said: "Ascendis basically did what most over-'growth' companies do. They had overly optimistic growth expectations mostly funded via acquisitions [debt funded] to get earnings growth, and when things in the economy go bad (as in SA we have weak consumer growth), corporate profits shrink but debt still needs to be serviced (especially in a rising interest rate environment) and there is a cash squeeze."..