Investors in American Pacific Corporation (APFC) have had a great run, especially in 2013. Shares have more than five-folded over the past two years, marking a great exit opportunity for investors who have done their homework in this former small capitalization firm in recent years.
Sale Of The Business
On Friday, American Pacific announced that it has entered into an agreement to be acquired by H.I.G. Capital in an all-cash deal valuing the business at $392 million.
H.I.G. which is a global private investment firm will make a tender offer to acquire the shares for $46.50 per share, a nearly 19% premium compared to Thursday's closing price.
What A Great Run, Based On Strategic Improvements
Shares of the manufacturer of fine and specialty chemicals as well as propulsion production have seen very strong momentum over the past years.
Shares have risen from levels around $7 at the start of 2012, ending the year in their high teens. This was followed by runaway momentum in 2013 with shares trading as high as $60 in October of last year. Ever since, shares have lost roughly a third of their value.
Underlying these returns has been the 3-year strategy of the firm. 2010 was the year of positioning for American Pacific, followed by the strengthening of the business a year later and the transformation in 2012. This was followed by further focus on growth and better returns through becoming a focused technology chemicals company with a focus on pharmaceuticals.
Between 2010 and 2013, American Pacific has grown annual revenues by a cumulative 55% as the firm showed a compounded annual revenue growth rate of around 15% for the three year period. After reporting modest losses, American Pacific reported earnings of $23 million last year.
These underlying cash flows allowed the firm to strengthen the balance sheet. American Pacific reduced its net debt position of around $80 million in 2010 to a rather flat net cash position last year. Note that the firm does hold about $30 million in pension liabilities on its balance sheet.
What About The Takeout Price?
American Pacific's long term strategy has paid off handsomely. Revenues in 2013 rose by 16% to $215.1 million while adjusted earnings rose by 147% to $24.9 million.
What about the reported price tag? The $392 million price tag as mentioned in the press release values the company at 1.8 times annual revenues. Based on 2013's adjusted EBITDA of $55 million and earnings of $23 million, the deal is valuing American Pacific at roughly 7 times EBITDA and 17 times earnings.
These multiples are fair in my opinion. Note that the company recently issued its 2014 outlook as well, indicating that 2013 could have been a very strong year. Revenues are still seen up by 5% in 2014, approaching $225 million this calendar year. Yet adjusted EBITDA is seen down nearly 20% to $45 million, pushing that multiple up towards 8.7 times EBITDA based on 2014 expected results.
I guess investors should be happy. The acquired price is below October's highs, yet shares were experiencing runaway momentum at the time. This level is fair, and while the offer is not really spectacular, it seems very fair and allows investors to exit at a nice level. Shares already trade very close to the offer price, closing two cents below the offer on Friday. At some points in Friday's trading session, shares traded above the level which implies a small chance of higher offer.
Yet I believe one should be happy to tender at these fair levels, and applaud management for doing a great job in recent years.