Mirion Technologies IPO: Finding Alpha by Detecting Gamma

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 |  Includes: ACAS, MION
by: Renaissance Capital IPO Research

Formed through the merger of three companies in 2005, Mirion Technologies provides radiation detection and analysis systems that protect people, property and the environment from nuclear and radiological hazards. Mirion's predecessor companies have a 50 year history in the nuclear energy industry and its products are currently deployed in 91% of the world's 438 active reactors.

With world electricity demand expected to double between 2006 and 2030, management sees the potential for more than 500 new global reactors over the next 20 years, representing an estimated $500 million+ annual market opportunity. The company plans to raise $176 million by offering 22.2 million shares at a range of $15-$17. Credit Suisse (NYSE:CS), BofA Merrill Lynch (NYSE:BAC) and J.P. Morgan (NYSE:JPM) are the lead underwriters on the deal, which is expected to price on Wednesday, May 26 and trade the following day on the NASDAQ under the symbol "MION."

A Market Leader

Mirion Technologies has a broad product line spanning radiation-monitoring employee badges, equipment contamination monitors, hand-held and fixed radiation sensors and reactor control equipment. With solutions addressing the entire 50-80 year life cycle of a reactor, predictable upgrade cycles support a stream of highly visible recurring revenues. The company has grown sales organically at an 11% clip since fiscal 2007, booking $228 million in the last 12 months. Additionally, over the same three-year period, its total backlog (orders plus deferred revenue) rose at an even faster 16% rate, and currently stands at $283 million. With EBITDA margins expanding to 20% in the last twelve months ($46 million), a cleaner post-IPO balance sheet should help get the company's bottom line into the black. Mirion's technology is also used by medical personnel, given the increasing frequency of radiological procedures, as well as in defense and military applications.

Key Issues

50% of sales are denominated in the weakening euro, which is likely to be a drag on near-term sales growth. Nuclear power remains politically sensitive in key western markets due to environmental and security concerns; no new reactors have been ordered in the US since the 1970s and Germany plans to shut down all its reactors by 2021. Additionally, project timing has produced lumpy quarterly results; sales have oscillated between $41 and $66 million over the past five quarters.

Private equity sponsor American Capital (NYSE: ACAS) is selling on the offering and will collect debt repayment and advisory fees. In a fragmented market, the company faces competition from small niche providers such as Landauer (NYSE: LDR) as well as divisions of much larger multi-national firms, including Thermo Fisher Scientific (NYSE: TMO) and the Paris-traded Areva (CEI.PA).

Outlook

Though Mirion Technologies has a respectable track record of top line growth and margin expansion since its 2005 formation, the company is facing a challenging IPO valuation environment in which 11 consecutive US deals have priced below the midpoint. As such, Mirion may have to convince investors that its growth opportunities from cross selling and in adjacent markets will outweigh the uncertainty surrounding the timing and extent of new reactor construction.