IPO Update: Avantor Plans $3 Billion U.S. IPO

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About: Avantor, Inc. (AVTR), Includes: BASFY, BIO, CCMP, DHR, DWDP, HON
by: Donovan Jones
Summary

Avantor has filed proposed terms for a $3 billion IPO and $500 million concurrent private placement.

The company provides a wide range of biomedical research products and services worldwide.

AVTR has grown its footprint through acquisitions but will still be under a heavy debt load post-IPO.

Quick Take

Avantor (NYSE:AVTR) has filed to raise $3 billion from an IPO, per an amended registration statement.

The company provides a wide variety of biomedical products and services to research organizations worldwide.

Private equity-owned AVTR will still have a heavy debt load after the IPO and only a low to moderate growth rate

Company & 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 its geographic 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.

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 in recent periods, per the table below:

Selling, G&A

Expenses vs. Revenue

Period

Percentage

To March 31, 2019

22.8%

2018

24.0%

2017

36.1%

Sources: Company registration statement, IPO Edge

Market & 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:

  • Slight increase in topline revenue

  • Increase in gross profit

  • Fluctuating gross margin

  • Increasing operating income

  • Decreased comprehensive loss

  • Increased 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 March 31, 2019

$ 1,480,100,000

4.4%

2018

$ 5,864,300,000

370.1%

2017

$ 1,247,400,000

Gross Profit (Loss)

Period

Gross Profit (Loss)

% Variance vs. Prior

To March 31, 2019

$ 475,200,000

7.9%

2018

$ 1,819,800,000

320.5%

2017

$ 432,800,000

Gross Margin

Period

Gross Margin

To March 31, 2019

32.11%

2018

31.03%

2017

34.70%

Operating Income (Loss)

Period

Operating Income (Loss)

Operating Margin

To March 31, 2019

$ 137,600,000

9.3%

2018

$ 413,500,000

7.1%

2017

$ (210,400,000)

-16.9%

Comprehensive Income (Loss)

Period

Comprehensive Income (Loss)

To March 31, 2019

$ (15,800,000)

2018

$ (179,800,000)

2017

$ (45,400,000)

Cash Flow From Operations

Period

Cash Flow From Operations

To March 31, 2019

$ 75,000,000

2018

$ 200,500,000

2017

$ (167,500,000)

Sources: Company registration statement, IPO Edge

As of March 31, 2019, the company had $143.9 million in cash and $9.2 billion in total liabilities, of which $6.7 billion was long-term debt. (Unaudited, interim)

Free cash flow during the twelve months ended March 31, 2019, was $191.5 million.

IPO Details

AVTR and a selling shareholder intend to sell 154 million shares of common stock at a midpoint price of $19.50 per share for gross proceeds of approximately $3 billion, not including the sale of customary underwriter options.

Concurrent with the IPO, the firm is making an offering of 10 million shares of its mandatory convertible preferred stock.

Assuming a successful IPO at the midpoint of the proposed price range and not including its concurrent offering, the company’s enterprise value at IPO would approximate $14.9 billion.

Excluding effects of underwriter options and private placement shares or restricted stock, if any, the float to outstanding shares ratio will be approximately 36.11%.

Per the firm’s most recent regulatory filing, it plans to use the net proceeds as follows:

We intend to use approximately $2,629.1 million (including the accumulated and unpaid dividends and make whole amount) of the net proceeds to us from both offerings to redeem all outstanding shares of our Existing Senior Preferred Stock, with any remaining proceeds used to repay $471.2 million and $269.7 million of outstanding indebtedness under the Dollar Term Loan Facility and the Euro Term Loan Facility, respectively. The Term Loan Facility matures in November 2024.

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

Listed underwriters of the IPO are Goldman Sachs, J.P. Morgan, and 24 other investment banks.

Valuation Metrics

Below is a table of relevant capitalization and valuation metrics:

Measure [TTM]

Amount

Market Capitalization at IPO

$8,315,675,687

Enterprise Value

$14,920,275,687

Price / Sales

1.40

EV / Revenue

2.52

EV / EBITDA

32.19

Earnings Per Share

-$0.41

Total Debt To Equity

-2.94

Float To Outstanding Shares Ratio

36.11%

Proposed IPO Midpoint Price per Share

$19.50

Net Free Cash Flow

$191,500,000

Revenue Growth Rate

4.36%

Sources: Company Prospectus and IPO Edge

As a reference, AVTR’s clearest public comparable would be Danaher (DHR); shown below is a comparison of their primary valuation metrics:

Metric

Danaher (DHR)

Avantor (AVTR)

Variance

Price / Sales

4.65

1.40

-69.8%

EV / Revenue

3.11

2.52

-19.0%

EV / EBITDA

21.17

32.19

52.1%

Earnings Per Share

$3.39

-$0.41

-112.0%

Revenue Growth Rate

3.9%

4.36%

11.73%

Sources: Company Prospectus and IPO Edge and Sentieo

Expected IPO Pricing Date: May 16, 2019.

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.