The acquisition of AMCo has diversifed Concordia Healthcare’s (TSX:CXR, Nasdaq:CXRX) product offering and improved its organic growth prospects, says Laurentian Bank Securities analyst Joseph Walewicz.
In a research update to clients yesterday, Walewicz maintained his “Buy” rating, but introduced a new one-year price target of (U.S.) $60.00 on Concordia, implying a return of 91.1% at the time of publication. His previous target was $98.00.
On October 21, Concordia announced it had completed the $3.5-billion acquisition of Amdipharm Mercury Ltd. (AMCo) from Cinven, a European private equity firm. Concordia completed the deal in part by strapping on (U.S.) $2.82 billion in new debt and raising $520 million in a public equity offering. The company now has a net debt position of $3.48-billion.
“This is a tremendous milestone for Concordia,” said CEO Mark Thompson of the pickup. “This acquisition has transformed us from a predominantly U.S. business to a leading, international pharmaceutical company.” “We now have a combined portfolio of more than 200 established products and an extensive geographic platform that spans over 100 countries. This combination creates a powerful global platform for our continued organic growth and significantly diversifies our business, while generating strong free cash flows to pay down our current debt and reinvest in the continued growth of our business.”
Walewicz says the current environment is a tough one and Concordia may remain “range bound” but says the company still has a compelling valuation going forward.
“Despite challenging markets, CXRX successfully completed debt and equity financings to close the transaction,” said the analyst. “At closing, CXRX has net debt of US$3.48 billion, which is ~5.7x our 2016 adjusted EBITDA (est.). While the leverage is very high, and the appetite for pharma debt has waned, we expect strong cash flows over the next year to decrease leverage and allow for continued investment in growth opportunities.”