Montreal-based Persistence Capital Partners has reduced its take-private offer for Neighbourly Pharmacy more than two months after making its bid.
Neighbourly NBLY-T, a company that buys up independent pharmacies across Canada, debuted on the stock market in 2021 during the pandemic boom in initial public offerings. Its stock rose to a high of $39.94 a share from the IPO price of $17, before tumbling throughout 2022 and 2023 to reach a low of $12.05.
That slide stopped when PCP, which currently owns 50.2 per cent of common shares, announced on Oct. 3 that it had signed a letter of intent to take Neighbourly private at a price of $20.50, which valued the company at $916-million. The deal was subject to the private-equity firm securing financing and a vote by shareholders.
On Monday, Neighbourly announced PCP had arranged equity financing at a revised price of $18.50 a share, a cut of nearly 10 per cent. The company had previously disclosed that TD Securities Inc. estimated Neighbourly’s fair market value at between $20.50 to $25.50 a share.
PCP managing partner Stuart Elman said in a news release that the offer was reduced because of difficult market conditions and based on the views of its financing partners.
A board committee will study the new offer with no set timetable and with no guarantee an agreement will be made. If a deal is reached, it will require majority approval by minority shareholders.
Neighbourly’s stock fell 15 per cent on Monday, to close at $15.10 a share.
National Bank analyst Zachary Evershed, who had called the original offer a “bitter pill” for investors who bought shares in 2021, said in a Monday note to clients that “no one will be delighted by the reduced offer” but that shareholders may have to support it anyway.
“With ownership of ~50.2% of the company, PCP again confirmed that it has no interest in selling its shares or supporting an alternative transaction with a third party, leaving public shareholders with scant few options to monetize stakes in the decidedly illiquid NBLY and gives PCP the long end of the stick in negotiating price,” he wrote.
Veritas analysts Kathleen Wong and Maggie Wang said in a note to clients that they thought Neighbourly deserved a higher valuation.
“We disagree with PCP’s comments about difficult market conditions,” they said, noting that interest rates have stabilized and are expected to go down next year, which would reduce borrowing costs.
PCP focuses on health care companies that grow through acquiring independent clinics – a business strategy known as a roll-up. Some of the firm’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 company currently has 292 locations across the country and has generally targeted its purchases at pharmacies in small or rural communities.
Chris Hannay