Clean exit from Repair Services at a premium price
​Regenersis (RGS) is the global number 1 player for 'data erasure' software to protect individuals/corporates from ID/data theft and cyber-crime, along with being a pioneer in the use of diagnostics for mobile phones (Xcaliber).
Last Friday it was announced that Communications Test Design Inc (a family-owned US engineering, repair and logistics enterprise) had agreed to buy RGS' non-core Repair Services business (RSB, incorporating Depot solutions and set-top box diagnostics) for €103.5m (£79.6m at £:€1.30) - representing an estimated exit multiple of 8.2x FY16 EV/EBITA. Completion is scheduled for Q2, but certainly no later than the long stop date of 5th August 2016.
We think this is a very satisfactory outcome, particularly in light of the potential impact on future M&A volumes/values due to the recent bout of stock market turbulence. More specifically the disposal allows RGS to make a clean break from a non-strategic asset, which suffered a major European contract loss last year (c. £22m turnover) - while the gross proceeds are towards the top end of our original expectations.
Further good news is that a large chunk of the proceeds - less deal fees and capital gains taxes (c.£8m in total) - will be returned to shareholders via a one-off £50m tender in Q2 (offer price tbc). RGS will have successfully completed its migration to become a pure play software developer, backed by strong IPR and unique technology. Here, it will be the world's undisputed leader (7x bigger than its closest rival) in the rapidly expanding data erasure space, be renamed Blancco Technology and led by CEO Pat Clawson.
Despite the sharply reduced valuations across the cyber-security domain, our overall price target has only marginally dropped to 227p/share (from 232p), offset by the better-than-expected RSB disposal proceeds, assumed lower sharecount (ie post £50m stock buyback) and June proforma net cash of £5m-£10m. Over time additional upside could be significant, based on our 'none-too stretching' DCF scenario analysis.
Regeneus is engaged in the development and commercialization of proprietary adipose-derived stem cell technologies used by physicians and veterinarians to treat musculoskeletal conditions in humans and animals.
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