Equity
ANALYSIS - The valuation of Richter and Egis in light of the Novartis deal
1. Valuation used in Novartis' deals.
Novartis said the two deals were carried out at a 13.9 EBIT and 11.7 EBITDA multiple, assuming an annual USD-200-million synergy effect. The respective multiples excluding the synergy effect were 18.2 and 15.3, according to our calculations made on the basis of the companies' earnings reports. Let's have a look at what price Richter and Egis would trade at if such multipliers were used. The review is theoretical due to the above-mentioned limitations and also because premiums paid in buy-ups are usually larger than what financial investors would deem acceptable.
Looking at pre-synergy Novartis-transaction indicators, the shares of the two listed Hungarian drug producers would trade 31-64% higher. Taking synergies into consideration, the difference would be only 0.5-26%.
Furthermore, we must note that valuations always reflect the dynamism of the company's growth, as well. Between 1997 and 2004, Hexal and Eon Labs boosted their sales in USD terms by an annual average of 25% and 36%, respectively. During the same period Richter and Egis increased their sales by 11.6% and 12.4% year on year, respectively. Of course investors' valuation is primarily focused on future profit and cash, but as these data are scarce for private companies like Hexal, we could not make a comparison.
