Instem has announced a proposed £5m fundraising via the placing of 2.5m new shares. Monies raised will accelerate the group’s consolidation strategy and fund organic growth. The outlook for organic expansion remains favourable, as evidenced by record levels of potential new drugs in early stages of the R&D pipeline. Management has provided meaningful colour on the acquisition strategy, and we note the company’s solid track record of successful M&A.
- A material, oversubscribed, fundraising: Instem has conditionally placed 2.5m new ordinary shares at 200p/share. At the current £26m market capitalisation, £5m of new equity (pre-expenses) is clearly material. The issue was oversubscribed, and the 200p subscription price represents a discount of just 2.4% to the 205p previous closing price. In addition to the placing, certain Directors have agreed to sell an aggregate 800,000 existing ordinary shares at the placing price. This represents approximately 6.1% of the existing base.
- Proceeds to drive future growth, organically and via acquisitions: In our view the outlook for organic expansion at Instem remains favourable. New drug approvals are at record levels, as are the volumes of drugs moving through the earlier stages of the R&D pipeline. Instem’s strategy is to act as an industry consolidator, with management attention focussed on acquisitions to complement the Group’s existing products, to leverage and enhance its global market position and to provide access to adjacent markets. The Group’s acquisition targets typically have an annual revenue range of US$1- 6m, and are anticipated to deliver annual EBITDA in excess of US$0.5m. We note the company has a strong track record of M&A, having successfully integrated three acquisitions since joining AIM in 2010 (BioWisdom, Logos and Perceptive Instruments).
- Underlying earnings estimates unchanged: Following the announcement, we make no change to underlying earnings estimates, which we will update to reflect the January 13th trading update at the time of the full year results. We have, however, today increased our forecast FY2016E closing net cash position by £5m to £7.1m.
Overall, we believe the announcement of a material fundraising, which significantly improves the platform for future growth should be welcomed. The proposed placing being over-subscribed and priced at such a small discount to the current level represent further indications of confidence in the Instem investment case.