National Bank Financial analyst Zachary Evershed thinks it is “no surprise” that Adentra Inc. (
) plans to use the proceeds of its $100.1-million bought deal public offering to solidify its balance sheet ahead of strategic acquisitions.
“With management highlighting a strong pipeline of targets, we anticipate that the proceeds will be deployed on a large acquisition or several smaller ones in short order,” he said after coming off research restriction.
“We note that the offering was not concurrent with an acquisition (as many investors would have preferred) as it remains impractical for ADEN to do so: U.S. targets, often privately-owned, are not keen on a Canadian bought deal process accompanied by audited/reviewed financial statements and instead prefer a cash buyer. Pre-raising the funds positions ADEN to be competitive against other buyers down south, and we note that the company has done this play before, raising $101-million in November 2021, 2.5 months prior to announcing the accretive acquisition of Mid-Am.”
Following Wednesday announcement by the Langley B.C.-based company, known as Hardwoods Distribution Inc. prior to a late 2022 rebrand, Mr. Evershed thinks it now can “handle $350-700 million in incremental revenue from M&A whilst remaining below management’s leverage comfort of 3.0 times, even before counting on FCF generation.”
“With clear intentions and the capacity to execute fully on 2028 goals, we reintroduce our M&A growth premium at 1 times EPS, representing $250 million of incremental sales acquired annually, not baked into our estimates,” he said.
Reiterating an “outperform” rating for Adentra shares, the analyst raised his target to $53 from $51.50, believing earnings per share dilution is likely to be “entirely temporary.” The average target on the Street is $50.93.