Quick Take

Maravai LifeSciences Holdings (MRVI) has filed to raise $1.275 billion from the sale of its Class A common stock in an IPO, according to an amended registration statement.

The company provides a range of nucleic acids and other products and services to biopharmaceutical research companies worldwide.

MRVI has produced strong growth results across all major metrics, enjoys a strong industry growth backdrop, and has a solid balance sheet, so the IPO is worth a close look.

Company & Technology

San Diego, California-based Maravai was founded to develop and sell nucleic acids, and provide biologics safety testing services and protein detection reagents.

Management is headed by Chief Executive Officer Carl Hull, who has been with the firm since 2014 and was previously CEO of Gen-Probe, a medical diagnostics company.

Below is a brief overview video of gene therapy:

Source: AGTC

The firm’s products and services are sold to more than 5,000 customers, including the top 20 global biopharmaceutical firms.

The company’s products serve to provide nucleic acids ‘for diagnostic and therapeutics applications,’ biologic antibody products ‘to detect impurities during the production of biopharmaceuticals products,’ and protein expression detection in tissues of various species.

Maravai’s product lines are shown in the graphic below:

MRVI is owned by private equity firm GTCR.

Customer Acquisition

Maravai pursues customers among biopharma firms and academic research organizations via direct sales and marketing outreach efforts.

The firm has built its business through both organic growth and via acquisitions and management says that acquisitions ‘remain core to our strategy’ going forward.

Selling, G&A expenses as a percentage of total revenue have dropped in the most recent reporting period as revenues have increased, as the figures below indicate:

Selling, G&A

Expenses vs. Revenue

Period

Percentage

Nine Mos. Ended Sept. 30, 2020

28.3%

2019

33.8%

2018

33.3%

Source: Company registration statement

The Selling, G&A efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of Selling, G&A spend, rose markedly to 1.5x in the most recent reporting period, as shown in the table below:

Selling, G&A

Efficiency Rate

Period

Multiple

Nine Mos. Ended Sept. 30, 2020

1.5

2019

0.4

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Source: Company registration statement

Market & Competition

According to a 2020 market research report by MarketsAndMarkets, the global gene therapy market was an estimated $3.8 billion in 2019 and is expected to reach $13.0 billion by 2024.

This represents an extremely high forecast CAGR of 27.8% from 2019 to 2024.

The main drivers for this expected growth are the continuing high incidence of cancer, the availability of significant reimbursements from payors and more investment in innovation and treatment options.

However, the high cost of gene therapies may reduce growth of adoption within the market as well as a slow and conservative regulatory approval process for these groundbreaking but powerful treatment options.

Management expects a combined market growth rate [CAGR] of 15% from 2019 to 2023, with a total market size in 2019 of $8.4 billion and an addressable market size of $3.6 billion in 2019.

Major competitive or other industry participants include:

  • Thermo Fisher Scientific (TMO)

  • Hongene Biotech

  • Aldevron

  • Bio-synthesis

  • System Biosciences

  • Integrated DNA Technologies

  • EMD Millipore

  • TriLink BioTechnologies

  • LGC Biosearch Technologies

  • GenScript Biotech (OTC:GNNSF)

Financial Performance

Maravai’s recent financial results can be summarized as follows:

  • Sharp growth in topline revenue

  • Similar gross profit and gross margin growth

  • Increasing operating profit

  • A swing to net income

  • Strong increase in cash flow from operations

Below are relevant financial results derived from the firm’s registration statement:

Total Revenue

Period

Total Revenue

% Variance vs. Prior

Nine Mos. Ended Sept. 30, 2020

$ 185,745,000

73.3%

2019

$ 143,140,000

15.6%

2018

$ 123,833,000

Gross Profit (Loss)

Period

Gross Profit (Loss)

% Variance vs. Prior

Nine Mos. Ended Sept. 30, 2020

$ 129,491,000

122.6%

2019

$ 76,291,000

21.0%

2018

$ 63,068,000

Gross Margin

Period

Gross Margin

Nine Mos. Ended Sept. 30, 2020

69.71%

2019

53.30%

2018

50.93%

Operating Profit (Loss)

Period

Operating Profit (Loss)

Operating Margin

Nine Mos. Ended Sept. 30, 2020

$ 88,657,000

47.7%

2019

$ 23,988,000

16.8%

2018

$ 16,436,000

13.3%

Net Income (Loss)

Period

Net Income (Loss)

Nine Mos. Ended Sept. 30, 2020

$ 63,762,000

2019

$ (4,470,000)

2018

$ (4,472,000)

Cash Flow From Operations

Period

Cash Flow From Operations

Nine Mos. Ended Sept. 30, 2020

$ 72,756,000

2019

$ 24,115,000

2018

$ (186,000)

(Glossary Of Terms)

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Source: Company registration statement

As of September 30, 2020, Maravai had $124.9 million in cash and $702.1 million in total liabilities.

Free cash flow during the twelve months ended September 30, 2020, was $90.4 million.

IPO Details

Maravai intends to sell 50 million shares of Class A common stock at a midpoint price of $25.50 per share for gross proceeds of approximately $1.275 billion, not including the sale of customary underwriter options.

After the offering, GTCR will own 81% of voting power via its ownership of Class A and Class B shares.

The S&P 500 Index no longer admits firms with multiple classes of stock into its index.

Assuming a successful IPO at the midpoint of the proposed price range, the company’s enterprise value at IPO would approximate $6.8 billion.

Excluding effects of underwriter options and private placement shares or restricted stock, if any, the float to outstanding shares ratio will be approximately 19.39%.

Per the firm’s most recent regulatory filing, the firm plans to use some of the net proceeds as follows:

$94.5 million to acquire 3,921,569 newly-issued LLC Units in Topco LLC and $942.7 million to acquire 39,121,430 outstanding LLC Units (or $1,096.2 million to acquire 45,489,067 LLC Units if the underwriters exercise their option to purchase additional shares in full) from MLSH 1, in each case at a purchase price per LLC Unit equal to the initial public offering price per share of Class A common stock in this offering, less underwriting discounts and commissions; and

$167.6 million to pay MLSH 2 as consideration for the Blocker Mergers and, if the underwriters exercise their option to purchase additional shares in full, $27.3 million to acquire outstanding shares of Class A common stock from MLSH 2 at a purchase price per share equal to the initial public offering price per share of Class A common stock in this offering, less underwriting discounts and commissions.

Management’s presentation of the company roadshow is available here.

Listed underwriters of the IPO are Morgan Stanley, Jefferies, Goldman Sachs, BofA Securities, Credit Suisse, UBS Investment Bank, Baird, William Blair, Stifel, KeyBanc Capital Markets, Academy Securities, Loop Capital Markets, Penserra Securities and Tigress Financial Partners.

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Commentary

Maravai is seeking public capital due to its private equity firm owner GTCR is selling shares.

The company’s financials show strong growth across all financial metrics. MRVI is generating significant free cash flow as well.

Sales and marketing expenses as a percentage of total revenue have dropped and its sales and marketing efficiency has improved markedly, indicating sharply increased capital efficiency in these regards.

The market opportunities for the firm’s various business segments are significant and expected to grow at anywhere from 15% to the mid twenties for the next several years.

As a comparable-based valuation, competitor and customer Thermo Fisher Scientific has far lower multiples across several revenue metrics but also has less than half of Maravai’s revenue growth rate.

It is unusual to see a private equity-owned company with such high revenue growth figures as Maravai’s.

Additionally, it is atypical to see the firm with relatively low debt on its balance sheet. Private equity owners usually lever up the firm and pay themselves large ‘dividends,’ leaving the firm with a heavy debt load in the process and few resources to generate high growth in the future.

That has not been the case with Maravai, which is highly favorable to its future prospects as the firm’s balance sheet is solid.

While the IPO isn’t cheap, I like Maravai’s prospects and financial results, so the IPO is worth a close look.

Expected IPO Pricing Date: November 19, 2020.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.



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