A bolstered balance sheet is a clear signal that Merus Labs (TSX:MSL) will be making potentially transformative acquisitions, says Paradigm Capital analyst Christopher Lam.
On July 10, Merus Labs filed a preliminary short-form base shelf prospectus which would allow the company to offer up to $250-million of common shares, warrants, preferred shares, subscription receipts and units, or any combination thereof, from time to time over a 25-month period.
Lam thinks this financing has clear implications.
“The base shelf prospectus is not surprising given that Merus employs an acquisition-led growth strategy,” he says. “We believe this is a clear signal to the market that transformative deals are in the pipeline and that Merus is positioning itself to act quickly. The Street’s focus is now clearly on management to maintain a loaded pipeline and blow through deals at an accelerated pace. Merus is led by a high-powered management team and we are confident in its ability to continue finding quality assets and not overpay. As such, we believe Merus is well positioned for lumpy but explosive growth.”
In a research report to clients today, Lam resumed coverage of Merus Labs with a “Buy” rating and one year target price of $4.00, implying a return of 21% at the time of publication.