Pharma wants a knife: cashed-up Mayne keen to cut some deals - DATA ROOMBridget CarterEDITED BY BRIDGET CARTER498 words11 August 2022The AustralianAUSTLNAustralian14English© News Pty Limited. No redistribution is permitted.Mayne Pharma is now cashed up and ready to pounce on attractive acquisition opportunities thanks to its $679m windfall from the sale of its Metrics Contract Services business.The sale will allow Mayne Pharma to pay down its $330m of syndicated debt and put the $591m pharmaceutical company in a cash position.While share buybacks and investment in development are being discussed as the areas where the money will be spent once debt is repaid, analysts are not ruling out acquisitions, with the group buying up businesses in the past as part of its expansion in the US.Specialty products are likely to now be on its agenda in terms of acquisition opportunities, and its area of focus is dermatology and women’s health.The sale of Metrics to New York-listed Catalent caps off a highly successful investment for Mayne. It paid about $130m for the US-based contract development and manufacturing organisation, which provides a broad range of services from drug development through to commercial manufacturing.This was almost a decade ago and over time it has invested about $100m into the operation.Mayne has timed the sale to perfection, with demand for such groups soaring because of a scarcity of independent CDMOs with strong regulatory records and capacity.Worldwide supply chain and material constraints have likely intensified demand this year.The sale price is at 13.5 times the group’s earnings before interest, tax, depreciation and amortisation including debt, in line with similar merger and acquisition transactions.Wilsons analyst Melissa Benson said in a research note that Wilsons’ view had been that a sale of Metrics would dramatically change the way Mayne is valued in the market.Trading multiples for listed international CDMOs have remained elevated, supporting their ability to pursue immediately accretive transactions such as Metrics.The deal sees Mayne Pharma’s enterprise value – the value including debt – fall to about $300m from about $800m.Without Metrics, Mayne is expected to make $39.5m in annual EBITDA during the 2023 financial year and $82.7m in the 2024 financial year, according to Dr Benson’s research note.Mayne is trading at about seven times forecast EBITDA for the 2023 financial year.The US-listed specialty pharmaceutical category generally trades at between eight and 10 times EBITDA.Shares in Mayne were up about 5 or 6 per cent on Wednesday, but Dr Benson said that the subdued response from investors may reflect uncertainty as to Mayne’s ability to double its EBITDA in the 2024 financial year. After paying down its $330m of syndicated debt, Wilsons says that the company will have about $300m to share between its investment needs and its shareholders. The company has the potential to provide a capital return of more than $50m, and the company’s franking credit balance could support a further $48m as a fully franked special dividend.
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