Yesterday, we added GRIFOLS SA, a mid-size Spanish pharmaceutical company specialised in plasma treatment and analysis. – see GOING LONG –
GRIFOLS Acquires BIOTEST AG
Today, Spanish pharmaceuticals company Grifols SA has agreed to buy a controlling stake in Biotest AG of Germany and make a bid for the rest of its shares in a deal that would value its German rival at 1.6 billion euros ($1.9 billion). Grifols offered 43 euros for each ordinary share and 37 euros for each preferred share, the Spanish company, respectively 23% and 4.2% higher thanThursday’s closing prices.
BIOTEST ordinary shares rose as high as 43.50 euros while GRIFOLS fell sharply at some point before recovering sharply to settle just above EUR 20. We bought this acres. at 20.84 yesterday.
Grifols has agreed with Tiancheng International Investment to buy the Hong Kong-based company’s controlling stake in Biotest for 1.1 billion euros. It has also offered to buy the remaining shares trading on the Frankfurt stock market.
The Barcelona-based company agreed to buy 89.88% of Biotest’s ordinary shares that carry voting rights, but which represent only 44.54% of the company’s capital, and a further 0.54% of capital in preferred shares that don’t carry voting rights, from Tiancheng.
Grifols will then offer Biotest’s minority shareholders 43 euros per ordinary share and 37 euros per preferred share.
The deal “will enlarge our existing portfolio of plasma-derived therapies and fast-track the development of new products,” Grifols’ CEO Raimon Grifols Roura said in a statement.
It will also boost Grifols capacity to collect plasma, a bottleneck for its development, thanks to Biotest’s 26 European plasma centers.
Biotest AG’s Chinese ultimate shareholder Creat Group Corp. is unwinding assets following an acquisition spree and a restructuring of their portfolio.
Creat’s strategy to expand in the global blood-plasma market was undermined when U.S. regulators pushed against Creat’s ownership in such businesses, a sensitive area. Creat’s expansion drive was upended when it drew scrutiny from the Committee on Foreign Investment in the U.S., which forced it to sell Biotest AG ’s U.S. operations.
North America historically accounts for about half the global market. The Chinese firm is also in advanced talks to sell its U.K.-based blood-plasma firm Bio Products Laboratory Ltd. in the coming weeks. A private equity consortium of Bain Capital and Advent International has been pursuing the asset, which has also attracted interest from rival buyout firm Permira..
The two transactions would see the Chinese group unwind a large part of a series of overseas acquisitions that began in 2016.
Creat also owns a stake in domestic blood plasma firm Shanghai RAAS Blood Products Co.
BUY Grifols SA GRF SM @ EUR 20.14
Barcelona-based Grifols, which has a market value of almost 12 billion euros ($14.1 billion), has been expanding in the U.S. and Asia through plasma-related acquisitions over the last several years.
Grifols S.A. develops, manufactures, and markets plasma derivatives, IV Therapy, enteral nutrition, diagnostic systems, and medical materials.
Grifols produces plasma derivatives, or plasma proteins for therapeutic use, which are sold to hospitals, doctors, and other health care professionals around the world.
Its Bioscience division operates plasma collection centers and processing facilities, as well as manufacturing, marketing, and distributing therapies. The Diagnostic division manufactures products that ensure blood transfusions are safe, test for blood clotting disorders or immune disorders.
Grifols’ Hospital division develops pharmaceutical products and medical devices used in hospital pharmacies. Grifols is present in approximately 100 countries with 95% of its sales coming from international markets.
Grifols operating segments are Bioscience, Hospital, Diagnostic and Bio Supplies.
Bioscience accounts for about 80% of total revenue, include all activities related with products derived from human plasma for therapeutic use.
Diagnostic (some 15%) includes the marketing of diagnostic testing equipment, reagents and other equipment, manufactured by Group or other companies.
Bio Supplies (roughly 5%), groups together all transactions related to biological products for non-therapeutic use, Kedrion production agreements, and third-party plasma sales channeled through Haema and Biotest.
Hospital (less than 5%) comprise all non-biological pharmaceutical products and medical supplies manufactured by Group companies earmarked for hospital pharmacy. Products related with this business which the Group does not manufacture but markets as supplementary to its own products are also included.
Grifols reaches customers in around 100 countries from its home base in Spain; it has subsidiaries in 30 countries. The group has six research centers in Spain (2), Switzerland, and the US (3). It also has manufacturing facilities in US, Brazil, Australia, Spain, Germany, Switzerland and Ireland.
While its network spans Europe, the Asia/Pacific region, and the Americas, the US and Canada make up about 70% of total sales.
Grifols engages with customers, including public and private; wholesalers, distributors, group purchasing organizations (GPOs), blood banks, hospitals and care institutions, National Health Systems.
The company closed the financial year 2020 with revenues of EUR 5.3 billion, representing an increase of 5%, driven by the Bioscience and Diagnostic Divisions. Excluding plasma sales to third parties, revenues increased by 7%. The contribution of new products accounted for more than 50% of the revenue growth.
Cash held by the company at the end of fiscal 2020 decreased to EUR 579.6 million. Cash provided by operations was EUR 1.1 billion while cash used for investing and financing activities were EUR 858.1 million and EUR 354.4 million, respectively. Main cash uses were payments for investments and proceeds from and payments for financial liability instruments.
Grifols’ R+D+i strategy is based on a comprehensive approach that encompasses both in-house and investee-led initiatives that are complementary to the company’s core operations, with third-party investments and collaborations serving as an extension of its R+D+i efforts. This holistic research approach, combined with its sustainable growth strategy, further reinforces Grifols commitment to patients as a fundamental pillar, and has led the company to continue to focus, even more, on disease management, promoting innovation beyond plasma-derived therapies. Grifols’ core strategic pillar is the pursuit of sustainable growth to promote long-term corporate success.
In early 2021, Grifols closed the acquisition of seven US plasma donation centers from Kedrion for US$55.2 million. Grifols will gain immediate access to the plasma obtained in these centers, which obtain approximately 240,000 liters per year. The seven newly acquired centers are authorized by the U.S. Food and Drug Administration (FDA) and European healthcare authorities. This acquisition reflects Grifols’ commitment to enlarge its plasma supply through organic and inorganic growth.
In 2021, Grifols announced the closing of its agreement with GigaGen Inc. to acquire its remaining 56% share capital for US$80 million. GigaGen is a US biotechnology company specialized in the early discovery and development of recombinant biotherapeutic medicines. The agreement is in alignment with Grifols’ R+D+i strategy, grounded in an integrated approach that encompasses both in-house projects and investee-led initiatives whose research complements its core operations.
Also, in 2021, Grifols finalized a US$370 million transaction to acquire 25 U.S.-based plasma donation centers from BPL Plasma Inc., a subsidiary of Bio Products Laboratory Holdings Limited. In accordance with the company’s strategic plan to advance its plasma-collection leadership, this transaction expands, reinforces and diversifies Grifols’ already-robust network of centers and capacity to supply life-enhancing plasma-derived medicines to patients.
The Investment Case
We added Grifols SA to our Model Portfolio yesterday without knowing about today’s acquisition on the basis of its sharply growing earnings potential and the discounted share price and valuation, even before the acquisition.
GRIFOLS Earnings per Share are set to grow sharply over the coming years, trebbling between 2020 and 2024 with a CAGR in excess of 20 % per annum on Revenues growth of 7 % per annum, before the Biotest acquisition.
The current share price represents a cheap multiple of 1x Price to Earnings growth
The Biotest acquisition will bring another 500 Million of revenues and 55 million of EBITDA while consolidating the presence of Grifols in Germany. At an acquisition price of EUr 1.6 Billion, Grifols is paying 3x sales for Biotest, a small premium when compare to its own 2.7x price to sales.
Our investment case was already strong before the acquisition of Biotest AG and is made even stronger after as Grifols is not overpaying for Biotest while enlarging immediately its ability to collect Plasma and its foothold in the German market.
2 Analysts have already published notes today with target prices at EUR 29
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