Smartkarma Research Team, Smartkarma

Smartkarma Research

Smartkarma Research Team

Smartkarma

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Event-Driven

<p>For our next Smartkarma Webinar, we have the pleasure of welcoming back Insight Provider <a href="https://www.smartkarma.com/profiles/jesus-rodriguez-aguilar" target="_blank" data-smartkarma-citation="accounts:5842" rel="noopener">Jesus Rodriguez Aguilar</a> to go over ideas in European Event-Driven. Jesus will examine offers that target FTSE 250 companies (particularly in healthcare and financial services); the real estate sector in Central and Eastern Europe; and special situations in European share classes and holding companies.</p>
<h3>The webinar was hosted on Wednesday, 16 June 2021, 17:00 SGT/HKT.<a href="https://share.hsforms.com/1H9pFZOB-RF2J00kbvMmxcw2c5gj?zoom_webinar_id=89974520966" target="_blank" rel="noopener"></a>
</h3>
<p>Watch the session here:</p>
<p><iframe src="https://www.youtube.com/embed/V5Kk8nkuLA8" width="560" height="315" title="YouTube video player" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen="allowfullscreen"></iframe>Or subscribe to our podcast feed and listen on the go:</p>
<p><iframe src="https://open.spotify.com/embed/episode/34F1xaRo0opzAuBgwai2wy?utm_source=generator" width="100%" height="232" style="border-radius: 12px;" frameborder="0" allowfullscreen="allowfullscreen" allow="autoplay; clipboard-write; encrypted-media; fullscreen; picture-in-picture"></iframe></p>
<p>Jesus Rodriguez Aguilar is an Event-Driven Analyst looking across sectors at opportunities arising from securities mispricing (both credit and equity), share classes, bid announcements, prospective bids, and special situations.</p>

For our next Smartkarma Webinar, we have the pleasure of welcoming back Insight Provider Jesus Rodriguez Aguilar to go over ideas in European Event-Driven. Jesus will examine offers that target FTSE 250 companies (particularly in healthcare and financial services); the real estate sector in Central and Eastern Europe; and special situations in European share classes and holding companies.
The webinar was hosted on Wednesday, 16 June 2021, 17:00 SGT/HKT.

Watch the session here:
Or subscribe to our podcast feed and listen on the go:

Jesus Rodriguez Aguilar is an Event-Driven Analyst looking across sectors at opportunities arising from securities mispricing (both credit and equity), share classes, bid announcements, prospective bids, and special situations.

Smartkarma Webinar | European Event-Driven: Top Ideas

European Event-Driven Analyst

Jesus Rodriguez Aguilar

<p>On 26 May, <a href="https://www.smartkarma.com/entities/ramsay-health-care-ltd" target="_blank" data-smartkarma-citation="entities:673:1" rel="noopener">Ramsay Health Care (RHC AU)</a> signed an agreement to acquire <a href="https://www.smartkarma.com/entities/spire-healthcare-group-plc" target="_blank" data-smartkarma-citation="entities:22159:1" rel="noopener">Spire Healthcare (SPI LN)</a> from Mediclinic and others. Consideration is <strong>240p</strong>, in cash, adjustable for any dividend or capital distribution at the discretion of the bidder. Mediclinic failed to acquire Spire (at a 25% higher price back then) and is tendering its 29.9% stake.</p>
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<p>Consideration represents 1.9x EV/Fwd Revenue, <strong>10.5x EV/Fwd/EBITDA</strong> and 38.9x Fwd P/E. <em>Past acquisitions in the sector have been carried out at a median 11.7x EV/EBITDA</em>. Premium vs. prior trading session is 24.4%.</p>
<p>Ramsay wants to enlarge its UK footprint, and increase the NHS mix in the merged UK operations (thus diversification of revenue as it seems difficult to grow through private payers exclusively). Margins from treatment provided on behalf of NHS are not dissimilar to those from private practice. NHS will have to deal with an increase in the waiting lists due to the pandemic. There is some mention to synergies but those will not presumably come until 2023. There are some issues regarding Ramsay's leverage, although it may need to divest some UK assets anyway to obtain the green light from the CMA.</p>
<p>Spire has been obtaining a ROIC of 3.3% lately, below WACC, which I conservatively estimate at 8.5% in my DCF valuation, so the business is likely to have been destroying value over the last FYs. Scale and better management may be behind the acquisition.</p>
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<p>On the day of the offer announcement, shares in Spire were up 52p, c. 27%, and closed at 245p, above Ramsay’s offer. Ramsay earlier closed down 0.7% on the Australian Stock Exchange. As I Finnish this Insight, Spire is trading at 247p. </p>
<p>Considering the premium offered, and that Mediclinic will tender its stake, I think interloper risk is unlikely. </p>
<p>As in the case of <a href="https://www.smartkarma.com/entities/udg-healthcare-plc" target="_blank" data-smartkarma-citation="entities:22193:1" rel="noopener">UDG Healthcare (UDG LN)</a> (see <a href="https://www.smartkarma.com/insights/cd-r-udg-healthcare-recommended-cash-offer" target="_blank" data-smartkarma-citation="insights:51370" rel="noopener">CD&amp;R/UDG Healthcare: Recommended Cash Offer</a> ), investors may want a premium over 24%, the shares are trading at 247p, c. 3% above the offer. Folks may have been using too high discount rates for UK listed healthcare, as there have been a number of bids lately in this sector (UDG, <a href="https://www.smartkarma.com/insights/carlyle-vectura-group-expectations-of-a-sweetened-bid" target="_blank" data-smartkarma-citation="insights:52066" rel="noopener">Carlyle/Vectura Group: Expectations of a Sweetened Bid</a>, Spire, among others).</p>
<p><strong>Gross spread is a negative (2.9)%</strong>. Recommendation is <strong>long SPI LN</strong>, <strong>TP 256.5p</strong> (blended average of comps and DCF), 3.8% upside to current market levels and c. 7% above offer price. Downside risk is limited and expectations of a sweetened bid are high.</p>

On 26 May, Ramsay Health Care (RHC AU) signed an agreement to acquire Spire Healthcare (SPI LN) from Mediclinic and others. Consideration is 240p, in cash, adjustable for any dividend or capital distribution at the discretion of the bidder. Mediclinic failed to acquire Spire (at a 25% higher price back then) and is tendering its 29.9% stake.

Consideration represents 1.9x EV/Fwd Revenue, 10.5x EV/Fwd/EBITDA and 38.9x Fwd P/E. Past acquisitions in the sector have been carried out at a median 11.7x EV/EBITDA. Premium vs. prior trading session is 24.4%.
Ramsay wants to enlarge its UK footprint, and increase the NHS mix in the merged UK operations (thus diversification of revenue as it seems difficult to grow through private payers exclusively). Margins from treatment provided on behalf of NHS are not dissimilar to those from private practice. NHS will have to deal with an increase in the waiting lists due to the pandemic. There is some mention to synergies but those will not presumably come until 2023. There are some issues regarding Ramsay's leverage, although it may need to divest some UK assets anyway to obtain the green light from the CMA.
Spire has been obtaining a ROIC of 3.3% lately, below WACC, which I conservatively estimate at 8.5% in my DCF valuation, so the business is likely to have been destroying value over the last FYs. Scale and better management may be behind the acquisition.

On the day of the offer announcement, shares in Spire were up 52p, c. 27%, and closed at 245p, above Ramsay’s offer. Ramsay earlier closed down 0.7% on the Australian Stock Exchange. As I Finnish this Insight, Spire is trading at 247p. 
Considering the premium offered, and that Mediclinic will tender its stake, I think interloper risk is unlikely. 
As in the case of UDG Healthcare (UDG LN) (see CD&amp;R/UDG Healthcare: Recommended Cash Offer ), investors may want a premium over 24%, the shares are trading at 247p, c. 3% above the offer. Folks may have been using too high discount rates for UK listed healthcare, as there have been a number of bids lately in this sector (UDG, Carlyle/Vectura Group: Expectations of a Sweetened Bid, Spire, among others).
Gross spread is a negative (2.9)%. Recommendation is long SPI LN, TP 256.5p (blended average of comps and DCF), 3.8% upside to current market levels and c. 7% above offer price. Downside risk is limited and expectations of a sweetened bid are high.

<p>On 12 May, <a href="https://www.smartkarma.com/entities/udg-healthcare-plc" target="_blank" data-smartkarma-citation="entities:22193:1" rel="noopener">Udg Healthcare (UDG LN)</a> <a href="https://files.q4europe.com/news-pdf/3235/UDGHealthcarePlc_15058575.pdf" target="_blank" rel="noopener">announced that it had reached an agreement</a> with Clayton, Dubilier &amp; Rice LLC on the terms of a recommended cash offer at 1,023p for the entire issued capital.</p>
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<p>For an implied equity value of £2,611 mn and implies an EV of £2,777 mn, according to the release.</p>
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<p><strong>16.6x EV/21e EBITDA</strong> and <strong>27.6x P/21e E </strong>(source: Capital IQ consensus).</p>
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<p>This represents a <em>premium</em> of approximately 30.3% to the 3-months VWAP (785.1p) and 21.5% to the closing price of 842.0p on 11 May 2021.</p>
<p>UDG has strong fundamentals and supports clients to develop and bring vaccines to market. Reliable cash flows, growth prospects, growing margins (integration of acquisitions) and US exposure, offer an attractive prospect for private equity, as UDG should be able to support higher debt levels (currently ungeared at 0.2x) and fund dividends.</p>
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<p>Acquisitions in the health-care sector have accelerated (and risen nearly fivefold to $117 bn this year according to Bloomberg) as a result of the Covid-19 pandemic.</p>
<p>Capital IQ consensus median TP is 1,217p, with eleven analysts following the company, so the offer is bang-in-line with consensus.</p>
<p>The bid was recommended by the board, and <strong>at 27.6x Fwd P/E, I believe it is a full price</strong> that will be accepted by shareholders, although I do not discard a competing bid. The shares have closed at 1,017p (with £174 mn traded, over 31x the last 3-month average daily volume). <em>Gross spread is an unexciting 0.6%, therefore I recommend buying on any share price weakness</em>.</p>

On 12 May, Udg Healthcare (UDG LN) announced that it had reached an agreement with Clayton, Dubilier &amp; Rice LLC on the terms of a recommended cash offer at 1,023p for the entire issued capital.



For an implied equity value of £2,611 mn and implies an EV of £2,777 mn, according to the release.


16.6x EV/21e EBITDA and 27.6x P/21e E (source: Capital IQ consensus).





This represents a premium of approximately 30.3% to the 3-months VWAP (785.1p) and 21.5% to the closing price of 842.0p on 11 May 2021.
UDG has strong fundamentals and supports clients to develop and bring vaccines to market. Reliable cash flows, growth prospects, growing margins (integration of acquisitions) and US exposure, offer an attractive prospect for private equity, as UDG should be able to support higher debt levels (currently ungeared at 0.2x) and fund dividends.




Acquisitions in the health-care sector have accelerated (and risen nearly fivefold to $117 bn this year according to Bloomberg) as a result of the Covid-19 pandemic.
Capital IQ consensus median TP is 1,217p, with eleven analysts following the company, so the offer is bang-in-line with consensus.
The bid was recommended by the board, and at 27.6x Fwd P/E, I believe it is a full price that will be accepted by shareholders, although I do not discard a competing bid. The shares have closed at 1,017p (with £174 mn traded, over 31x the last 3-month average daily volume). Gross spread is an unexciting 0.6%, therefore I recommend buying on any share price weakness.

CD&R/UDG Healthcare: Recommended Cash Offer

Ireland

UDG Healthcare plc was an Irish multinational healthcare services company that provided outsourced solutions to pharmaceutical, biotechnology, and medical device companies. Its services included clinical, commercial, communication, and packaging services. The company was founded in 1948 and headquartered in Dublin, Ireland.

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UDG Healthcare (UDG LN)

Smartkarma Webinar | European Event-Driven: Top Ideas

On 16 June, 5pm SGT, join us and Jesus Rodriguez Aguilar to go over top ideas in European Event-Driven, including offers that target FTSE 250...

Smartkarma Research

Ramsay Health Care/Spire Healthcare

Investors may want a premium over 24%. Gross spread is (2.9)%. Long SPI LN, TP 256.5p (average of comps and DCF), c. 7% above offer. Limited...

Jesus Rodriguez Aguilar

CD&R/UDG Healthcare: Recommended Cash Offer

The bid was recommended by the Board, and at 27.6x Fwd P/E, I believe it is a full price that will be accepted. Gross spread is an unexciting 0.6%....

Jesus Rodriguez Aguilar

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