In a tit-for-tat bidding war for Virtus Health, CapVest appears to be in the driver’s seat to secure all of the company with its latest bid. VRT has signed a transaction implementation deed with CapVest, almost, but not completely ruling out a deal with BGH.
CapVest has undertaken to acquire all of VRT by a Scheme of Arrangement (SOA) at $8.25 per share, less any dividends including the 12cps interim dividend declared in February 2022. This bid values VRT at an equity value of $719 million or 12.7x FY22f consensus EBITDA.
As rival bidder BGH has previously stated it will not accept any CapVest SOA deals, CapVest has made a simultaneous off-market takeover offer at $8.10 per share (less dividends) with a minimum acceptance condition of 50.1%. We note BGH owns 20% of VRT. The deal is fully funded and binding and subject only to limited conditions, none of which are at CapVest’s discretion. CapVest now has matching rights to any competing offers and a break fee of $7.2 million.
The VRT Board has determined not to engage further with BGH or provide it with access to due diligence. The Board has unanimously recommended the CapVest bid which now also has the support of VRT’s fertility specialists.
A transaction booklet is expected to be provided to shareholders who will then vote at the Scheme Meeting likely to be held in June 2022.
Investment view
The bidding for VRT has been intense and it now looks like CapVest may prevail.
The process has obviously been good for shareholders as the company is now being valued in line with its global peers where transactions have been completed between 10-14x EBITDA.
It also crystallises a valuation above the 5-year high point at a time when VRT’s earnings profile had weakened due to COVID-19 headwinds and operating expense investments.
The long term future for VRT remains very positive as it grows its fertility business. It is adding clinical infrastructure, genetics capability and a Precision Fertility unit targeting $10-15 million of incremental EBITDA by FY23f onwards.
Risks to investment view
The takeover proposal for VRT may not be completed if shareholders reject it. The underlying business might not achieve its plans and growth may be disrupted by a downturn in demand for fertility services.
Recommendation
We have retained our Hold recommendation.
