Pharmacy chains M&A multiples
Historically, Pharmacy chains exchanged hands at around 12 EBITDA (list below). Today, NBLY is trading at 10 EBITDA, which is materially under the historical average valuations for companies of its type.
Most critically, the company is growing at a much faster rate than the industry. Between May and June alone the company added 10 pharmacies, bringing in an additional $6M in EBITDA. The company pays between 6 and 7 EBITDA for the pharmacies it acquires, at the mid-range NBLY paid around $40M to acquire, which means such acquisitions remain substantially accretive even in today’s interest rate environment. Accordingly, at 35-40 pharmacies added per year (over $20m in additional EBITDA per year - ex-growth in SSS) NBLY is in position to create substantial value for shareholders over the coming years.
With close to 80% of the business tied to prescriptions, the cash flow is highly stable and can easily sustain an increase in leverage to 4 times.
All this explains why the company was able to raise $270m in equity last year at $28.95/share to fund its acquisition of Rubicon. Investors buying today in the mid-teens are capitalizing on that acquisition at close to 50% discount. Considering these dynamics, I doubt that the stock will trade below the IPO price of $17 for long.