Avantor Begins Process For U.S. IPO

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About: Avantor (VNOR)
by: Donovan Jones
Summary

Avantor has filed to raise $100 million in an IPO, although the final amount may be much higher.

The firm is the result of recent large mergers and provides a wide range of scientific products to various industry verticals worldwide.

VNOR is debt-heavy and we can't determine how well the company is doing on an organic basis due to its recent large M&A activity.

Quick Take

Avantor (VNOR) intends to raise gross proceeds of $100 million from a U.S. IPO, according to an S-1 registration statement.

The firm provides essential products and services for the life sciences and advanced technology industries.

VNOR is the result of recent large combinations, so we can’t tell whether it is growing organically. Also, the firm will use the IPO proceeds to pay off its private equity sponsor, rather than going toward its business plan.

Company And Technology

Radnor, Pennsylvania-based Avantor was founded in 1904 to help enhance production workflow and lower operational costs of companies in the advanced technologies, biopharmaceutical, healthcare, education, government, and applied materials industries.

The firm merged with NuSil in 2016 and acquired VWR Corporation in 2017. The VWR acquisition provided Avantor with its primary customer ordering platform and the acquisition resulted in a large increase in footprint and operational size.

Private equity firm New Mountain Capital is a major shareholder in the company and manages over $20 billion in assets.

Management is headed by CEO, Director and President Michael Stubblefield, who has been with the firm since 2014 and was previously Senior Expert - Chemicals Practice at McKinsey and Company.

Avantor’s offerings include materials, consumables, equipment, services as well as specialty procurement.

Below is a brief overview video of the company’s focus and offerings:

Source: Avantor

The company’s materials and consumables offerings include ‘ultra-high purity chemicals and reagents, lab products and supplies, highly specialized formulated silicone materials, customized excipients, customized single-use assemblies, process chromatography resins and columns, analytical sample prep kits and education and microbiology and clinical trial kits.’

Among Avantor’s equipment products include ‘filtration systems, virus inactivation systems, incubators, analytical instruments, evaporators, ultra-low-temperature freezers, biological safety cabinets and critical environment supplies.’

Moreover, the firm provides ‘onsite lab and production, clinical, equipment, procurement and sourcing and biopharmaceutical material scale-up and development services.’

Besides marketing manufactured goods, the company also sells products sourced from about 4,000 suppliers globally.

Some of Avantor’s established brands include NuSil, J.T.Baker, Macron Fine Chemicals, Puritan Products, BeneSphera, Rankem, POCH as well as CareSil.

Source: Avantor

The company has over 150 strategically located sales and distribution centers that employ around 3,800 sales and sales support experts who are led by the VWR brand, which Avantor acquired in Nov. 2017.

Sales and marketing expenses as a percentage of revenue have been dropping sharply, per the table below:

SG&A

Expenses vs. Revenue

Period

Percentage

To Q3 2018

24%

2017

55%

2016

76%

Sources: Company registration statement,IPO Edge

Market And Competition

Avantor operates in four industries, whose estimated addressable market size per management is as follows:

  • Biopharma sector portion was $30 billion in 2018 and is projected to grow 7% by 2020.
  • Healthcare sector portion was $9 billion in 2018 and is expected to grow 5% by 2020.
  • Education and Government sector portion was $15 billion in 2018 and is anticipated to grow 3% by 2020.
  • Advanced Technologies and Applied Materials sector portion was $15 billion in 2018 and is projected to grow 4% by 2020.

Major competitors in the industries Avantor operates in include:

Source: Sentieo

Financial Performance

VNOR’s recent financial results can be summarized as follows:

  • Dramatic increase in top line revenue due to the acquisition of VWR
  • Large increase in gross profit
  • Significant decrease in gross margin
  • Uneven EBITDA
  • A swing to positive cash flow from operations

Below are relevant financial metrics derived from the firm’s registration statement:

Total Revenue

Period

Total Revenue

% Variance vs. Prior

To Q3 2018

$4,390,400,000

748.1%

2017

$814,600,000

119.2%

2016

$371,600,000

Gross Profit (Loss)

Period

Gross Profit (Loss)

% Variance vs. Prior

To Q3 2018

$1,387,000,000

478.9%

2017

$432,800,000

35.4%

2016

$319,700,000

Gross Margin

Period

Gross Margin

To Q3 2018

31.6%

2017

53.1%

2016

86.0%

EBITDA

Period

EBITDA

To Q3 2018

$(67,500,000)

2017

$(460,200,000)

2016

$(70,600,000)

Cash Flow From Operations

Period

Cash Flow From Operations

To Q3 2018

$130,600,000

2017

$(167,500,000)

2016

$72,900,000

Sources: Company registration statement, IPO Edge

As of September 30, 2018, the company had $171.8 million in cash and $9.2 billion in total liabilities, of which $7 billion was long-term debt (unaudited, interim).

Free cash flow during the twelve months ended September 30, 2018, was a negative ($58.1 million).

IPO Details

VNOR has filed to raise $100 million in gross proceeds from an IPO of its common stock, but could actually raise as much as $1.5 billion when the final number is disclosed.

Per the firm’s latest filing, it plans to use the net proceeds from the IPO as follows:

We intend to use the net proceeds to us from this offering to redeem outstanding shares of our Existing Senior Preferred Stock, with any remaining proceeds used for general corporate purposes.

The Senior Preferred Stock is receiving a large dividend and as of September 30, 2018, totaled $2.23 billion in value and is likely owned mostly by New Mountain in conjunction with the VWR acquisition.

Management’s presentation of the company roadshow is not available yet.

Listed underwriters of the IPO are Goldman Sachs and J.P. Morgan.

Expected IPO Pricing Date: To be announced.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.