Neighbourly Pharmacy Inc. NBLY-T has agreed to a deal to be taken private by its largest shareholder, just two years after the pharmacy network debuted on the stock exchange during the pandemic boom of initial public offerings.
Persistence Capital Partners (PCP), which already owns 50.2 per cent of common shares, has offered $20.50 per share for the proposed sale, which values the company at $916-million.
The offer is a 69-per-cent premium on Monday’s closing price of $12.12 on the Toronto Stock Exchange, and about 21 per cent above the IPO price of $17 in May, 2021. But it is also about half of the stock’s all-time closing high of $39.94 reached on Dec. 27, 2021.
The deal gives PCP until Nov. 13 to arrange financing, and is also subject to a vote by shareholders.
National Bank analyst Zachary Evershed said the deal was a “bitter pill” for investors who bought in through the highs of 2021, but thought the vote was likely to pass because the value was a “lifeline” for those who participated in the IPO and it was in line with peer transactions.
The company disclosed in Tuesday’s news release that it had hired TD Securities Inc. to give a fair market value for the company, which TD pegged between $20.50 to $25.50.
Veritas analysts Kathleen Wong and Maggie Wang, who had previously estimated Neighbourly’s intrinsic value at $33 a share, lowered their valuation to $25.50 – the upper end of TD’s range – and said in a note to clients they believed shareholders would push for a higher go-private price than the $20.50 that PCP offered.
Stuart Elman, managing partner of PCP, said in a news release that “as a private company, Neighbourly will have more flexibility and resources to pursue its strategic vision to advance the role that independent pharmacies can play in Canada.”
PCP is a Montreal-based private-equity firm that focuses on health care companies that grow through acquiring independent clinics, a business strategy known as a roll-up. Some of PCP’s other portfolio companies include Anova Fertility & Reproductive Health, MCA Dental Group and MedSpa Partners, a network of dermatology clinics.
Neighbourly’s biggest acquisition while public was a $435-million deal to acquire Rubicon Pharmacies, a chain of 100 stores based in Western Canada. The deal, which closed June 27, 2022, required the approval of the Competition Bureau. Neighbourly was forced to divest two pharmacies in Saskatchewan, as it otherwise would have owned the only pharmacies in two towns.
Neighbourly’s acquisition strategy has focused on buying independent pharmacies in small and rural communities across Canada, where retiring pharmacists often struggle to find buyers to take over their shops, former chief executive officer Chris Gardner told The Globe and Mail in an interview last year. (Mr. Gardner stepped down in January but has remained at Neighbourly as a strategic adviser.)
He also said Neighbourly’s locations tend to be smaller than pharmacies from bigger rivals, such as Shoppers and Rexall, and less focused on non-pharmaceutical retail sales such as food and cosmetics.
Neighourly said Tuesday it would not publicly comment on the deal until it is either completed or abandoned.
The company is one of many that held IPOs in the stock rally of 2020 and 2021, only to see share prices pull back sharply in the following years. Many tech-focused companies in particular have struggled post-IPO, with some going private in 2023, such as Dialogue Health.
Dentalcorp Holdings Ltd., a private-equity-backed acquirer of dental clinics, also went public in May of 2021 in what was then the highest IPO for a health company. Its stock price debuted at $14 a share and climbed above $18 by the end of the year, before dropping to under $6 in late 2022.
Dentalcorp announced in November, 2022, that it was conducting a strategic review in response to unsolicited offers, and analysts speculated at the time that the board was considering a go-private offer from Dentalcorp management and private-equity firm L Catterton, which owns 39 per cent of Dentalcorp stock. However, the review was ultimately called off without a sale.
Chris Hannay