National Bank/Desjardin/Cormark/BMO take deal comments
National Bank - Oct 3rd :
“While the takeout price is a bitter pill for investors who participated in subsequent financing rounds (see Figure 1) or supported the stock in the $30s, we believe the transaction will ultimately receive minority shareholder approval as the $20.50 takeout price is in line with NBLY's historical and peer valuations (see Figure 2), is in line with precedent transaction valuations (see Figure 3), is a substantial premium to the current price which had yet to show any signs of slowing its downward momentum, and represents a lifeline for IPO investors at the $17 mark who could only exit positions with difficulty given the low liquidity of trading.”
Desjardin – Oct 3rd:
NBLY announced today that it has entered into a letter of intent with majority shareholder Persistence Capital Partners (PCP) whereby PCP would take the company private; PCP owns ~22.4m shares (~50.2%). Minority shareholders would receive C$20.50/share in cash, representing a ~69% premium to the closing price of C$12.12 on October 2 and a ~47% premium to the 20-day volume-weighted average price of C$13.96. The proposed transaction has the unanimous recommendation of the board and independent committee. NBLY has granted PCP exclusivity through November 13, 2023 to complete negotiation of definitive agreements. A management information circular will be made available around mid-November, with the shareholder vote expected to take place around mid-December. The proposed transaction would require approval from the majority of minority shareholders. If approved, the transaction is expected to close in 4Q CY23 or 1Q CY24. The proposed transaction is predicated on PCP securing the financing, which is in advanced negotiations according to management. The purchase price would be ~C$450m and we estimate NBLY’s leverage will increase by ~4.5x to ~8x net debt/EBITDA. Given the high leverage and interest rates, equity would be required.
While the offer price is well below the high C$20s to low C$30s in previous financing rounds, given current market conditions with high interest rates and NBLY’s relatively high debt leverage, we believe the proposed transaction will ultimately receive minority shareholder approval since it is at a significant premium to the recent share price, is above the C$17 IPO price and is largely in line with precedent transaction valuation. We also believe the likelihood of a competing bid is not high, especially given PCP has indicated that it has no interest in selling to a third party and that it would not support any alternative transaction. The offer price is also largely in line with our C$20 target price, which is based on ~11x two-year forward pro forma EBITDA.
Cormark – Oct 3rd:
Deal overview: PCP (already owns 50.2% of NBLY's equity) is making an all-cash offer of $20.50/share for all remaining NBLY shares. The offer represents a 69% premium to the last close and 47% premium to the 20-day VWAP. The deal is to be financed by PCP via debt and equity, which are both in advanced stages of negotiation. A NBLY shareholder vote will take place (requires a majority of minority approval) and the Board intends to recommend shareholders vote in favour of the offer. PCP has exclusivity through November 13 to complete negotiations and PCP stated it has no interest in selling its ownership stake to any third party and would not support an alternative transaction. The NBLY transaction committee has received an oral opinion from TD as of October 2 that fair market value is in the range of $20.50-$25.50/share. Deal closing would be in Q4/C23 or early Q1/C24.
Deal valuation: Using our existing NBLY forecast inclusive of ongoing consolidation funded with debt leverage (see Figure 1), the takeout offer from PCP represents premium F2024/F2025 valuation metrics of P/E 36.8x/29.5x, FCF yield 2.7%/3.5%, and EV/EBITDA 13.7x/12.2x (or EV/EBITDA 17.7x/15.2x using EV excluding lease obligations and EBITDA post rent).
Investment Conclusion: We recommend shareholders sell into the premium valuation on offer. We change our rating to Tender (was Market Perform)
BMO Oct 3rd:
PCP's proposed acquisition of Neighbourly at $20.50 per share represents a price that we believe more accurately reflects the underlying fundamentals of the business. The implied valuation appears reasonable (~12.3x 2024E EV/EBITDA vs. long-term average of 14.1x NTM EV/EBITDA and peer average of 10.7x) and the offer price represents a 69% premium to the October 2 close. A third-party bidder is unlikely to emerge, so the transaction is subject to regulatory and shareholder approvals. We maintain our Market Perform rating and $21 target price.