Concordia Healthcare acquisition of Covis gets thumbs up at Laurentian

Laurentian Bank Securities analyst Joseph Walewicz likes Concordia Healthcare’s (Concordia Healthcare Stock Quote, Chart, News: TSX:CXR) acquisition of Covis Pharma.

This morning, Concordia announced it would buy Covis Pharma SARL and Covis Injectables SARL for (U.S.) $1.2-billion in cash. The company said it would finance the pickup through a combination of term loans, bonds and equity.

“Covis’s strong commercial momentum will have an immediate and material impact on our top- and bottom-line financial results,” said CEO Mark Thompson. “In the longer term, this transaction creates greater scale and diversification for Concordia, which should support the continued execution of our aggressive growth plans.”

Walewicz says this acquisition adds “substantially” to Concordia’s top and bottom line. Although he notes that all the operating metrics are not yet available, he estimates the deal was done at about 6x pro forma revenues. He points out that Covis’s gross margins are in the 90% range and the company adds no new headcount and has limited operating expenses.

The analyst says this deal will effectively double the size of Concordia.

“CXR expects its existing business to deliver US$40-43 million in revenue in the fourth quarter and the the Covis Assets to deliver approx. US$47-52 million in revenues in the same period,” he notes.

In a research update to clients this morning, Walewicz maintained his “Buy” rating on Concordia Healthcare and placed his target price, which was set at $48.00, under review.

Shares of Concordia Healthcare today closed up 25.2% to $80.34.

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