Morgan Stanley’s offer for Solium Capital is fair, Haywood says

Haywood Securities analyst Pardeep Sangha says Morgan Stanley’s proposed purchase of Solium Capital (Solium Capital Stock Quote, Chart TSX:SUM) is a fair deal for the latter’s shareholders.

This morning, Solium Capital announced it had entered into a definitive arrangement agreement with Morgan Stanley under which Morgan Stanley, through a wholly owned subsidiary, would acquire SUM, subject to shareholder approval.

The proposal, which would see Morgan Stanley acquire Solium for approximately $1.1-billion, or $19.15 a share, has the unanimous approval of the company’s board.

Sangha, noting that the acquisition price represents a 43 per cent premium to SUM’s recent closing price, says the deal makes sense.

“The transaction price represents approximately 5x EV/Revenue and 20x EV/EBITDA of CY20 estimates,” he notes. We view Morgan Stanley’s bid as a fair offer and we are not expecting any competing bids given the premium being offered and the nature of the business relationship between Solium and Morgan Stanley.”

In a research update to clients today, Sangha changed his recommendation on Solium Capital from “Buy” to “Tender” and raised his one-year price target on the stock from $17.00 to $19.15.

Sangha had modeled Adjusted EBITDA of $16.6-million on revenue of $109.7-million in 2018 for Solium. He expects those numbers will improve to EBITDA of $31.7-million on a topline of $137.3-million the following year.

Solium Capital is the sixth component of analyst Sangha’s coverage universe to be acquired, joining QHR, Tio Networks, Apivio Systems, Cortex Business Solutions and Avigilon.