total ballpark deal value I am not a Chartered Financial Analyst but can say a few things from my capital budgeting experience that might spark some clarity discussions around potential deal value here:
- a lot of emphasis from company on the strength of the royalty stream. I used 5% below but it could be higher or lower.
- The company says that the deal will make them profitable. If they are spending a little bit more than shoestring amounts to buy equipment and staff as they have said, which they have not been spending in the past, the ballpark below is in line with that statement. One could also look backwards and add 10% profit to the historical expense line and go there as well.
- Pre-acquisition $158M USD in sales in 2018 confirmed growth at 13.8% puts sales of Skinmedica extrapolated to approximately at $300 USD or $390M Cdn for 2023, when it's reasonable to assume the ingredients will be on shelves.
- If 25% of product contains the ingredient, then that nets out to $98M in sales in scope. I have no idea if 25% is the right proportion but will look at that later.
- Taking a very reasonable 5% royalty translates to $4.9M in royalties revenue x 17 years = $83M. Note the 17 years was noted clearly in bold font on the presentation and assume this is the term.
- Add growth in sales per year at 5% from 2023 onwards (I didn't add that in yet) - gives you an idea that in year 17, royalties eventually climb to 2.30x higher from the compounded growth at this lower rate (or approximately $11M), then add upfront and milestones for whatever kpi's are in place which are plus plus..
Lots of assumptions here, but if royalties are higher than 5%, then even better. Lots of potential to run sensitivity analysis, refine the model, and maybe a little monte carlo work to assess risk outcomes.
In summary, the deal is subject to a variety of factors, but arguably a royalty rate on product pricing is a completely different scenario than just getting 8k per kg of raw chemical.
So $83M plus all those extras not factored into the analysis could potentially materialize beyond $100M.
What is the market cap today? I think this number looks more reasonable, realistic and in line with the profit ascertion of the company than the PRC number.
Do your own due diligence but its looking a tad more healthy than 16 cents per share.