Probiotec Shares Rocket Higher on Strategic Acquisition

It’s been a strong day for markets worldwide thanks to vaccine news. With the US-based Pfizer confirming that their promising COVID-19 jab is 90% effective.

But they aren’t the pharmaceutical stock reporting a win today.

Local outfit Probiotec Ltd [ASX:PBP] is up 18% at time of writing. Soaring on the back of new takeover talks.

And, as a key drug packer and distributor, they may have a lot of work ahead of them in the near future. So this acquisition may be a very timely indeed.

That is, if we see a COVID-19 vaccine made real sometime soon…

Consolidated effort

Multipack-LJM is the target of Probiotec’s interest. A private company that is a leading provider of packaging services in Australia.

In FY20 alone they reported $70 million worth of sales. Achieving Earnings of roughly $12.6 million pre-tax. Making them a perfect addition to Probiotec’s own business.

As Wes Stringer, Probiotec’s CEO, comments:

The acquisition of Multipack-LJM is the next step in Probiotec’s evolution. This acquisition will give us significant critical mass and access to an amazing spread of global clients to offer our wide range of manufacturing and packing services.

This is a material transaction for the group and it is very exciting to bring the Multipack-LJM business under the Probiotec umbrella.

Without a doubt, their combined entities will be a formidable force. One that should deliver strong long-term value for shareholders.

However, it won’t come cheap either.

With a proposed bid of $52.5 million, Probiotec is paying for the long game. Especially as the terms will require them to pay $32.4 million in cash upfront. With the remaining $20.1 million paid out in shares, or deferred considerations. The latter of which will require certain earnings targets to be met.

That’s a sizeable sum for a company that reported just $6.3 million cash on 30 June. Which is why this takeover will be funded through a new debt facility. One that will add to the $11.3 million worth of debt Probiotec already has on its books.

Needless to say, both parties are in this for the long haul.

What’s next for Probiotec?

For now, both Probiotec and Multipack-LJM will need to work out the finer details. Working on closing this deal sometime in late December, if all goes to plan.

That will give shareholders — and the market — plenty of time to mull over this bid. One that certainly looks favourable on paper but may take some time to bear fruit.

Nevertheless, investors should see this is a good sign.

Not only does it demonstrate that Probiotec is looking to scale, but they’re doing so quickly. Perhaps looking to take advantage of forthcoming surge in demand. At least, that’s one way to look at it…

Whatever direction management decides to take though, this acquisition will certainly provide options. Something that could lead to a number of different avenues for growth.

And that is something any investor can get excited over.


Ryan Clarkson-Ledward,
For Money Morning

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Ryan Clarkson-Ledward is an Editor at Money Morning.

Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects.

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