Abraaj backs Uganda’s largest pharmacy chain

The injection of fresh capital comes after a year rich in deals for the firm’s social-minded vehicle.

The Abraaj Group has made an investment in Vine Pharmaceuticals, Uganda’s largest pharmacy retail chain. The amount of the transaction was not disclosed. 

The investment was made through the firm’s Africa Health Fund, and is the vehicle’s first in the pharmacy retail and distribution sector. The fund, founded in 2009, surpassed its target in December 2011 by closing on $105.4 million. 

It is one of a few hybrid vehicles targeting Africa, Shakir Merali, a partner at Abraaj, told Private Equity International. “The fund seeks strong commercial return for our investors, while at the same time creating impact at the base of the economic pyramid through supporting business models that improve accessibility and lower costs of healthcare goods and services.”

The vehicle counts the International Finance Corporation, the African Development Bank, and the Bill & Melinda Gates Foundation as cornerstone investors. 

Its latest deal comes after a year that saw it make three new investments, bringing the total portfolio to eight companies. Previous investments have included clinics, hospital groups, medical centres and healthcare product and services suppliers. The fund is now invested in five countries: Kenya, Ghana, Nigeria, Togo and Uganda. 

There is a huge healthcare deficit in terms of infrastructure in Africa. On any standard metrics, the continent is lagging behind.

Shakir Merali

Vine Pharmaceuticals, founded in 1999, counts 21 stores and 92 employees, and a pharmaceutical import business. Abraaj intends to help it win further market share in the fast-growing Ugandan market, Merali said. Expenditure in pharmacy retail and distribution is expected to increase from $268 million in 2011 to $545 million by 2014.

But Merali also explained that the company’s successful model could serve as a template in neighbouring countries in the region. 

“There is a big opportunity within Uganda, but also in some of the adjacent countries that share similar characteristics. If we’re able to execute effectively, I would not be surprised for us to have as a component of regional expansion. Once you’ve essentially got the model working you can then apply a relatively formulaic way of expanding your business organically.”

This could be completed by further acquisitions, both inside and outside the country, he said. “I would not consider doing any investment in this space unless I saw a robust potential for us to set it as a platform opportunity. That’s a critical consideration, because getting to scale is always going to be the real value driver with the businesses we’re investing in.” 

He saw the continent as ripe with further opportunities. “There is a huge healthcare deficit in terms of infrastructure in Africa. On any standard metrics – whether it be the number of doctors, nurses, hospital beds – the continent is lagging behind. But it’s not just purely access to healthcare: the big problem we face in these markets is also a deficit in quality.”

This unabated demand for healthcare, he said, explained why the fund had an unusual proportion of its resources earmarked for second rounds of capital injection. 

“Most funds will probably apply a 70/30, or 80/20 ratio in terms of first deals versus dry powder. We’re closer to 60/40. Because a number of these companies are going to require scale within the three to four years post investment, we’ve also preserved follow-on capital for the expansion.”

The Africa Health Fund was originally managed by Aureos Capital, which Abraaj acquired last February with a view to further strengthen its presence in emerging markets in Africa and around the globe.