The Zenitas Healthcare Limited (ASX: ZNT) share price has rocketed upwards 23% after receiving a takeover offer from a consortium of Adamantem Capital Management Pty Limited and Liverpool Partners Pty Limited for $1.46 per share in cash.
This morning Zenitas reported its annual result for the 12 months ended 30 June 2018 showing a 78% rise to $76.6 million of revenue compared to the pro-forma FY17 revenue.
All below comparisons are against pro-forma FY17 figures unless stated.
Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 99% to $13.9 million. The underlying figures exclude one-off acquisition costs of $1.86 million. EBITDA increased by 174% to $12.1 million.
The underlying EBITDA margin improved to 18.2% in FY18, up from 16.3% in the prior year.
Excluding material acquisitions, underlying EBITDA was reported as $13.2 million, in line with previous guidance of $13 million to $13.5 million according to Zenitas. Organic EBITDA growth was 7.3% for FY18.
Underlying net profit after tax (NPAT) after non-controlling interests went up by 78% to $5.7 million. Reported earnings per share (EPS) came in at 6.1 cents. The full year dividend was 2.5 cents per share, including a fully franked final dividend of 1.5 cents per share.
Net cash flow from operating activities grew by $6.5 million to $7.4 million. Zenitas had $6.7 million cash on the balance sheet at the end of FY18 and a net debt / underlying EBITDA ratio of less than 0.9 times. Zenitas said it had around $5.3 million of undrawn debt facilities at the end of the financial year. A new $68 million bank facility will also facilitate additional acquisitions in the future.
In FY18 Zenitas added 50 clinics and attracted 55,000 new patients, clients and participants.
It has made a large number of acquisitions over the past year, all of which are performing to expectations and management said integration activities are proceeding well.
However, the Padbury Family Practice acquisition will not complete due to the vendor not satisfying transaction conditions and the Orion acquisition has been delayed due to the WA Government decision to transition to NDIS from the state-based scheme, impacting the registration process.
Zenitas also provided an update on the consolidation of its back office and procurement initiatives. It has invested in communications platforms and IT services, introduced a CRM platform, it’s consolidating some of its supplier agreements to realise “substantial savings” in FY19 and reducing the number of practice management systems.
Zenitas said that it now has an annualised revenue run rate of $130 million, which compares to $76.6 million of revenue reported in FY18.
But, the reason for the sharp rise in the share price was the takeover bid.
The takeover offer
A consortium of Adamantem Capital Management Pty Limited and Liverpool Partners Pty Limited has proposed a scheme of arrangement to acquire all the shares of Zenitas for $1.46 cash per share. The offer is a 34.6% premium to the ‘undisturbed’ closing price of $1.09 on 27 August 2018. Undisturbed is referring to the share price before media speculation of a brewing takeover offer.
The offer values Zenitas at 11.9x Enterprise Value / FY18 Underlying EBITDA after deducting minority interests.
Adamantem is an Australian private equity firm and Liverpool Partners is a Sydney-based investor and adviser. Mr Jonathan Lim is a Managing Partner of Liverpool Partners and a Non-Executive Director of Zenitas. Mr Shane Tanner is Zenitas’ Non-Executive Chairman and will be an upstream investor in one of the entities managed by Liverpool Partners.
The Board of Zenitas has established an Independent Board Committee (IBC) to evaluate the proposal, as well as another other competing proposals. The IBC has engaged CitiGroup as financial adviser and HWL Ebsworth as legal adviser.
The members of the IBC have unanimously recommended that Zenitas shareholders vote in favour of the scheme in the absence of a superior proposal, subject to the Independent Expert concluding it’s in the best interests of Zenitas shareholders.
The Zenitas CEO and Chairman of the IBC, Justin Walter, said the proposal is a significant premium to the recent Zenitas share price, is 100% cash and offers a high degree of certainty. For those reasons, the IBC thinks it’s a very attractive offer.
Zenitas shareholders will be given the opportunity to vote on the Scheme in a meeting expected to be held in mid-November 2018. If approved, the scheme is expected to be implemented in late November 2018.
I thought the Zenitas result was solid considering the cheap price it trades at for the annualised revenue and profit, plus the likely organic growth. A 1.5 cent dividend per share was also a pleasing bonus.
The offer is clearly very attractive to the recent share price, although I’ll be sad to lose Zenitas from the ASX because I think it has a very attractive future in the home care and allied health space.
There was speculation that other parties were scoping out Zenitas, so perhaps another offer will appear. I don’t intend to sell my shares immediately, I will wait to see if another offer appears.