TSX:HRX - Post Discussion
Post by
retiredcf on Jul 11, 2024 11:56am
TD
HRX RECEIVES $32.50/SHARE OFFER FROM PRIVATE EQUITY
THE TD COWEN INSIGHT
Heroux-Devtek and Platinum Private Equity announced they have entered into an agreement to acquire all HRX shares, other than those to be rolled over by certain members of senior management, for $32.50 in cash, implying an enterprise value of $1.35 billion.
We view the proposed acquisition price positively given the implied multiple relative to our forecast and target.
Impact: POSITIVE
The acquisition price represents a 16% premium to our target, a 28% premium to yesterday's close, and a 47% premium to the 90-day VWAP. Based on our estimates, the implied enterprise value implies a multiple of 10.7x our valuation-period forecast EBITDA, 14.6x F2024 EBITDA, and 12.0x F2025E EBITDA, all of which are above our target multiple of 10.0x, HRX's trailing 5-year average of 8.5x, comp-group trailing 5-year average of 10.4x, and peak of 10.6x.
The $32.50 acquisition price implies a multiple of 20.7x our valuation-period forecast EPS, 32.2x F2024 EPS, and 26.0x F2025E EPS, and compares to our target multiple of 16.0x, HRX's trailing 5-year average of 18.5x and its comp-group trailing 5-year average of 18.9x. We believe that the long-term upside potential for HRX shares is greater than $32.50, but obviously believe that it represents an attractive short-term return when considering our view of its last published expected value in the public equity market over 12-months.
The Board has unanimously endorsed transaction. The transaction is expected to close before the end of F2025 (March 31, 2025), and is subject to customary closing conditions (i.e., shareholder and regulatory approval). It is an all-cash transaction with no financing condition. Heroux-Devtek would have to pay a $40 million termination fee if it were to accept a superior proposal, and there is a reverse termination fee of $63 million. Shareholders representing 25% of shares o/s have agreed to vote in favour of the transaction. Major shareholder, CDPQ, is supporting the transaction. Certain members of senior management will roll over a portion of their common shares at the $32.50/share transaction price.
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