3rd Jun 2016 10:31
LONDON (Alliance News) - Source BioScience PLC could be subject to a GBP63.0 million takeover after two private investment management firms revealed they are considering making an offer for the business within the next month.
Continental Investment Partners SA and Harwood Capital LLP have teamed up to consider making the offer for Source BioScience and have already confirmed any offer is likely to be at a premium to the London-listed company's current valuation.
The pair have until the start of next month to either make a firm offer for the business or walk away from the deal.
Although it is not certain, the pair have indicated they will offer 18.0 pence for each existing share in Source BioScience and confirmed that offer would not be any higher than that but could be lowered under certain circumstances.
Source BioScience had a market capitalisation of around GBP51.7 million on Thursday, and an offer at 18.0 pence per share would be worth GBP62.9 million - almost a 22% premium.
Shares in Source BioScience were trading up 14% to 16.85 pence per share on Friday morning, giving it a market capitalisation of around GBP58.9 million.
The company operates ten "state-of-the-art" facilities in five different countries and has a customer base spread over more than 90 countries, offering services and products that cover clinical diagnostics, DNA sequencing, genomics, analytical testing, drug discovery and development research.
Notably, Source BioScience also boasts the top 50 pharmaceutical companies in the world within its client base, alongside leading universities and research institutions. In the UK, the company also supplies the NHS.
Source BioScience enjoyed a sterling year in 2015 and delivered record levels of profit and cash generation which helped its share price rise by almost 69% between the end of 2014 and the end of last year.
Pretax profit in 2015 was 40% higher year-on-year at GBP2.0 million whilst cash generation increased by more than 64% to GBP4.6 million and the business also made some acquisitions and launched new products and services.
Source BioScience aims to continue growing the business by expanding its service and product offering and wants to primarily achieve this by using its expanded infrastructure to grow organically, but has also said it will consider "carefully selected acquisitions".
The company acquired two companies in 2015. Select Pharma Laboratories Ltd was bought in August and complimented the company's laboratory service offering and allowed it to begin expanding into adjacent markets, whilst BritainsDNA was snapped up after years of being a customer, helping Source BioScience improve the efficiency of its DNA-offering.
Source BioScience reached a milestone in 2015 after it delivered over 1.0 million DNA sequencing reads, a 15% rise from the previous year. Source BioScience also secured its first contract with the European Centre for Disease Control to provide DNA sequencing after being awarded a three-year deal worth a total of EUR1.2 million.
A new online sexual health service was also launched called Just Between Us, which increased its production capabilities and capacity, and since the start of this year, Source BioScience has also launched Polar 50, a walk-in chamber used in research and drug manufacturing, at its Rochdale facility.
However, after a small rise at the very start of 2016, the company's share price began to drop off and is was trading over 20% lower than at the start of the year at the close on Thursday.
N+1 Singer, which is the company's financial advisor and broker, said back in March that Source BioScience was one of its "best ideas for 2016" and said it was "somewhat puzzled" by the fall in the company's share price since the start of 2016, adding it offered an "exceptional entry point" for new investors.
Continental and Harwood already have clients that hold material stakes in Source BioScience and the pair have also received a letter of intent from another existing shareholder in the business that is willing to support the offer, should it be made.
Continental has clients that currently hold a combined total of 25.5 million shares, equal to a 7.29% stake in Source BioScience, whilst clients managed by Harwood hold 82.5 million shares in Source BioScience, equal to a 23.62% stake.
Once combined, those shares give the pair a combined stake in Source BioScience of 30.91%, but another existing shareholder in Source BioScience has also sent a letter of intent to vote in favour of a potential takeover offer from the two potential bidders.
Alphagen Capital Ltd, which is a subsidiary of Henderson Capital Group PLC, has indicated it will use its holding of 69.7 million Source BioScience shares, equal to a 19.96% stake, to support a potential offer.
That means the two potential bidders already own or have the support of a majority holding in Source BioScience that is equal to a 50.87% stake, and that is before making a final decision or gauging the support from the company's smaller shareholders.
Importantly, Continental and Harwood may consider lowering the potential offer price if the board of Source BioScience agrees and recommends a lower offer for any reason, or if the company decides to pay a dividend or other form of distribution to its shareholders.
Continental, Harwood and Source BioScience have held "initial discussions" regarding the offer and the London-listed company has released a statement confirming the preliminary approach. However, Source BioScience will not voice its opinion on the matter until the formal terms of any potential offer is made, meaning other shareholders will have to wait to find out the board's view for the meanwhile.
Notably, Source BioScience will hold its annual general meeting in Nottingham next Thursday.
Looking at the potential bidders in more detail, Continental was established in 2013 and is based in the city of Lugano in Switzerland with other offices in the UK and Dubai.
Harwood was incorporated in 2003, focuses on listed companies and is led by Christopher Mills, who had GBP810.0 million worth of funds under his management at the end of 2015. The wider Harwood Capital Management Group manages funds of around GBP3.10 billion and has been investing and producing returns for its clients since 1993.
By Joshua Warner; [email protected]; @JoshAlliance
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