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Is Mayne Pharma Group Ltd’s US$652 million acquisition a reason to buy shares?

What: Fast-growing generic drug manufacturer Mayne Pharma Group Ltd (ASX: MYX) has announced an agreement to acquire a portfolio of 37 US Food and Drug Administration (FDA) approved and 5 FDA filed products from Teva Pharmaceutical Industries in a US$652 million deal.

So What: The pricing of the acquisition represents a multiple of under six times the projected earnings before interest, tax, depreciation and amortisation (EBITDA).

To fund the acquisition, Mayne Pharma is undertaking a $287 million placement and has extended its debt facility, while launching a fully underwritten $601 million 1-for-1.725 accelerated non-renounceable entitlement offer.

Now What: Mayne Pharma’s share price has run hard over the past few years with the stock up 50% in 12 months and nearly 200% in five years.

This latest deal will see the group’s market capitalisation grow to around $2 billion. That’s still much smaller than the near $50 billion capitalisation of CSL Limited (ASX: CSL). However investors who follow CSL will understand the appealing economics of a successful pharmaceutical company.

According to Mayne Pharma’s announcement:

  • the acquired portfolio is expected to contribute sales of US$237 million in FY 2017 with gross margins greater than 50%
  • and the acquisition is expected to be significantly accretive to reported and cash earnings per share (pre synergies) in FY 2017

CSL has been a core blue chip stock for years. Could Mayne Pharma be next?

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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