In The Australian today.
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 buy backs and investment in development are being discussed as the areas where the money will be spent once debt is repaid, analysts are also 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 that 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.
It’s 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 mergers 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.
Ms Benson said that the price was in line with recent mergers and acquisition transactions.
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, she said in her research.
Currently, Mayne is trading at about 7 times forecast EBITDA for the 2023 financial year.
The US-listed specialty pharmaceutical category generally trades at about between 8 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 the business’ investment needs and 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.
Mayne may elect to retain between $100m and $150m in order to become active again in business development.
Wilsons says that Metrics was an under-valued part of the Mayne portfolio and other non-core parts of the business could be its legacy retail generic products in its purified protein derivative (PPD) division.
But while Wilsons believes that this could be part of the business that Mayne exits, they see it as unlikely in the short term.
They also add that selling retail generics, which does not include dermatology, could make sense once Mayne’s NEXSELLIS birth control pill becomes the primary source of EBITDA from fiscal 2025.
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