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DEAL NOTES OMNICARE

Innovation where it matters most

The provision of cancer treatment drugs in Germany is highly specialised, operating in a complex regulatory environment. Within this market, Omnicare is ‘one-of-a-kind’, Alexis Milkovic tells PLATFORM.

Omnicare logo and image

WHEN OMNICARE WAS put up for sale, corporate finance adviser, Lincoln, came straight to Equistone.

“We have a very close relationship with Lincoln’s Frankfurt office,” says Equistone’s Alexis Milkovic. “They approached us very early-on, before they went to the market with teasers.”

Equistone is not an outright sector specialist, but it has had several notable successes in German healthcare, with successful deals such as medical supplies distributors GHD and Sunrise Medical. “These transactions showed we can deal with the complexities of the German healthcare market and its regulatory aspects.”

Lincoln also saw Equistone as a fit given Omnicare’s entrepreneurial nature. The company’s founder, Oliver Tamimi, who still leads the business, was looking for a partner who would take a majority stake while allowing him to fulfil the vision for the company without undue intervention. “It became very clear that we were their partner of choice,” says Alexis.

What Mr Tamimi’s team had achieved up to that point was remarkable. Omnicare originated from a low-margin specialist wholesale drug-distribution business. There are some 250 compounding pharmacies across Germany – not general retail outlets, but specialist drug-compounding companies. In recent years, Omnicare has been transformed from a pure shareholding platform that provided these companies with purchasing-power vis à vis pharma giants, and into a mutually reinforcing ecosystem of pharmacies with quality assurance. The next phase of growth – and part of the investment case – is to continue to invest in oncology outpatient clinics, thereby enhancing the whole value chain.

It’s a highly scalable oncology platform with a clear governance structure that yields attractive margins compared to general pharma wholesalers. That’s why it’s one-of-a-kind.
Omnicare

For major manufacturers, the advantage of Omnicare is the ability to access compounding pharmacies across Germany without having to employ a dispersed salesforce. Meanwhile, the pharmacies benefit from knowledge-sharing and superior pricing, and adhere to quality and assurance standards. As a result, Omnicare facilitates better and more individual care in a widespread network of outpatient centres, with in-house treatment using quality-assured medication.

“It’s a highly scalable oncology platform with a clear governance structure that yields attractive margins compared to general pharma wholesalers. That’s why it’s one-of-a-kind,” says Alexis.

The company has strong growth opportunities within the German market. That is partly because the incidence of cancer is rising. In addition, the company is looking at other types of cancer and treatments to move into, either organically or through add-ons. Omnicare’s unusual structure also means it enjoys high barriers to entry. “Your business partners are dozens of small pharmacy owners, who must get onboard, agree to one document, one strategy and put their own money in,” says Alexis. “You can only pull that off if you originate from the industry. Oliver is a pharmacist, and it took him many years to develop the structure.”

Regulation and ethics

The attractions of the business are clear, but understanding the associated risks required a detailed due diligence exercise. To understand the risk of changes to the reimbursement system, Equistone commissioned interviews with politicians and regulators.  Other risks included the growth of oral therapy at the expense of intravenous, which could weaken the addressable market for compounding – a concern that management and Equistone’s advisers, including a medical doctor from Alvarez & Marsal, alleviated.

Equistone team: Dirk Schekerka, Julia Lucà and Philipp Gauss.
Equistone team: Alexis Milkovic (top photo), Dirk Schekerka, Julia Lucà and Philipp Gauss.

In addition, Equistone’s Investment Committee had a more classic investment concern. Mr Tamimi would be taking a significant sum off-the-table. Would he remain motivated, after the deal?

For the investment team, who had, by now, had numerous meetings and dinners with Mr Tamimi, the question was not in doubt. “You get a feeling for incentives, and our feeling was that, if anything, Oliver was even more engaged and fired up now, with the prospect of growing the platform.”

Since the founder had chosen Equistone, the competition fell away and the two parties reached an agreement.

Strategic support

Following the investment completion, Alexis proposed that Omnicare take on a dedicated compliance and regulatory resource. “Clearly, the regulatory environment is crucial to this business. The responsibility for this should not be only on the shoulders of the CEO, CFO and business-line heads. In addition, the business will be more attractive in a future exit if it can provide a face and seniority to its compliance function.” The team had not considered such a role, but quickly agreed.

Not long after the acquisition, the world became aware of Covid-19. In fact, the pandemic did not materially affect the business. After a year of ownership, says Alexis, “the performance is truly impressive.”

The company beat its targets in its first year, and delivered a new budget much higher than Equistone’s investment case. “This is partly the result of a very conservative plan, and that shows the character of Oliver, the CEO. He could have presented us with very different numbers going into the process, but he was looking for a partner and not only the highest price.” 

Creating a healthcare innovator

WHEN OLIVER TAMIMI took his first job in a specialist oncology pharmacy after qualifying in 1996, he quickly discovered two interests: entrepreneurial solutions to problems in the healthcare and pharmacy sector; and the concept of community-based oncology.

This remain at the heart of Omnicare – the best possible treatment of cancer patients should be where the patient lives.

“The creation of Omnicare was not one single moment, but a constant challenging of the status-quo. Originating from the daily problems that compounding pharmacies face, and that I faced myself, I tried to reimagine a system that could solve some of these issues. From that point on I realised that I had to think about the entire ecosystem,” says Mr Tamimi. “That led to the Omnicare of today, evolving into a platform.”

It is rare for a new, entirely unproven business model to be dreamed up and then successfully executed, but on this point, Mr Tamimi is equally self-effacing. “It was not my idea but that of the team and our customers,” he says.

Trust is one of the main values the company is built upon. If you are part of a decentralised network, it is very important that your partners trust you.
Oliver Tamimi, Chief Executive, Omnicare.
Oliver Tamimi, Chief Executive, Omnicare.

In 2011, Germany’s specialist pharmacy sector faced growing regulatory threats. Mr Tamimi and his colleagues invited nearly 100 owners of other specialised pharmacies, both clients and other contacts, to discuss the problems facing them in open workshops. “We asked what their real problems were and how we could overcome them together. This was the moment where we brought them together and created Omnicare as it is today.”

Omnicare’s founder puts its success down to trust and people. “Trust is one of the main values the company is built upon. If you are part of a decentralised network, it is very important that your partners trust you.” The second most important thing, says Mr Tamimi, is the people within the company.

It was precisely for these reasons that he chose to deal with Equistone. “We felt that the Equistone team and the business atmosphere they described to us, was right for us.” We wanted to have an acceptable price for our shareholders, but we didn’t only look for the best possible price. We wanted to feel that the people on the deal really understood our vision and would be part of our team and help us realise our goal of a vertical oncology platform.”

A full version of this article appeared in PLATFORM 04, Winter 2020/21