Should PNV consider taking over ARX?………..this may not be as...

Should PNV consider taking over ARX?………..this may not be as stupid as it sounds.

To be absolutely transparent, I am currently a shareholder of ARX, but I have a healthy respect for PNVs management, financials and product offerings. The only reason I hold ARX over PNV is the considerable differences in current valuations.

ARX have 5 commercialised biological wound care products and further products in the pipeline. They focus on complex wounds and soft tissue reconstruction.

Their biological products are very competitively priced at around 20% to 40% cheaper than other biological products. Although, more expensive than synthetic product offerings.

The forecast revenue of ARX is likely to be around $32m for the FY as at 31/03/2022. For the last financial year, they produced around $22m revenue.

Their current gross margin is around 70% and this is likely to improve to around 73% by 2024.

They plan to be EBIT positive by 31/03/2024.

As at 30/06/2021 they have about $31m cash in the bank.

The benefits to PNV are that they would be able to offer both synthetic and biological wound care products. With the combined revenue and cost savings derived from reducing any duplication, PNV could become profitable even sooner.

The good part is that ARX only have a market capital of about $366m which is just over a quarter the size of PNVs market capital. ARX has a EV/Revenue multiple of 16.4x. PNV has a EV/Revenue multiple of around 60x. Obviously, there are good reasons for the difference in valuations, but the acquisition of ARX by PNV would be an interesting idea.

I know that the shareholders of PNV are a passionate bunch with good reason.

What do others think?