Takiing Offers

Low debt, increasing dividend, onshoring tail winds.

It makes sense (IMO)

Small-cap Probiotec Limited, which provides contract manufacturing services to global bigwigs like Pfizer and L’Oréal, is fielding interest from suitors keen to assess whether it’s worth taking the company off the ASX boards.

Artist impression of the new Probiotec warehouse that Frasers and Aware will build in Sydney.

Street Talk can reveal Probiotec has had Melbourne corporate advisor Canterbury Partners quietly vetting M&A options for the business. Sources said the company received an unsolicited approach and had decided to parlay it into a traditional process.

The tyrekickers were understood to be private equity types rather than strategics. It was not known who was on the scene after Canterbury called for non-binding indicative bids last week.

Probiotec chair Jonathan Wenig declined to comment on Canterbury’s appointment when contacted by Street Talk on Sunday, “We have a very good strategic vision for the company and business,” he said.

The company was founded in 1997 and listed on the ASX nine years later, in 2006. Its founding family, the Stringers, are still involved in day-to-day operations and control nearly 20 per cent of the register, making them pivotal to any attempts to acquire the company.

Probiotec runs six facilities in New South Wales and Victoria that provide full-service contract manufacturing and packaging services across six product categories: pharmaceuticals (prescription as well as over-the-counter), vitamins and supplements, veterinary products, cosmetics, food and beverage and pet food.

It has more than 200 clients on its books ranging from alcohol brands like Asahi and Diageo to blue-chip pharmaceuticals like Pfizer and Sanofi.

Under pressure

All of that added up to first-half revenues of $106.8 million and $17.8 million EBITDA. Its margins have been hit over the past two years by higher input costs (labour, freight and energy), but it has beat forecasts, reduced leverage to 0.75 times on a net debt-to-EBITDA basis and consolidated facilities.

The group is trading at 13.26 times on a price-to-earnings basis and has a market value of $195.2 million. The shares last closed at $2.40, up 6.19 per cent in the last 12 months.

Should the interest firm up into a binding bid, it would spell a big payday for Probiotec founder Wayne Stringer, who’s holding on to 10.85 per cent of the company 26 years after he set up the business. Its chief executive officer, Wesley Stringer and chief financial officer Jared Stringer own 5.98 per cent and 3.89 per cent respectively.

Also on the register are fund managers Perpetual Limited (5.1 per cent), Pie Funds Management (5.08 per cent), Copia Investment Partners (4.21 per cent) and Wilson Asset Management (1.46 per cent).

Interestingly, Canterbury’s mandate is said to include identifying acquisition targets. Probiotec has made a handful of bolt-on acquisitions, including the $52.5 million purchase of contract packer Multipack-LJM in 2020.