In This Acquisition, The Acquirer Could Be the Buy
Acquisitions can sometimes push down the stock price of an acquirer. But that is not always the case as news of a recent deal demonstrated. Globe Newswire reported,
Repligen Corporation (Nasdaq: RGEN), a life sciences company focused on bioprocessing technology leadership, today announced that it has entered into a definitive agreement to acquire privately-held C Technologies, Inc. for approximately $240 million.
The purchase will be comprised of $192 million in cash plus $48 million in Repligen common stock. Traders seemed to agree that the deal boosts value and bid the stock of RGEN up.
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C Technologies recorded revenue of $23.7 million in 2018, and is projected to generate $27-$29 million in revenue (pro forma) in 2019, led by the success of its SoloVPE product-line which is considered a gold standard for measuring protein concentration in biopharmaceutical manufacturing.
It is possible the acquisition of C Technologies will establish Repligen in the rapidly growing Process Analytics segment of bioprocessing with protein measurement technologies and a strong foundation for next-generation product development.
C Technologies is an analytics company with a market-leading portfolio of spectroscopy products used primarily in biopharmaceutical manufacturing.
Over the past 10 years, C Technologies’ SoloVPE platform has become a standard in quality control and process development labs and in production-scale manufacturing for off-line or at-line protein concentration measurement.
According to experts, the Use of the VPE technology delivers accurate and consistent protein measurement results to customers, eliminating the need for manual and time-consuming sample dilution while reducing time to results.
More recently, C Technologies introduced its FlowVPE technology, which features in-line protein concentration measurement in filtration, chromatography and fill-finish applications. A key benefit of this in-line solution is the ability to monitor a manufacturing process in real time.
Tony J. Hunt, President and CEO of Repligen said, “The addition of C Technologies is a major step forward in building out a Process Analytics franchise for Repligen. We are excited to have Craig and the C Technologies team join Repligen.
We look forward to further developing the core Slope Spectroscopy technology for real-time bioprocess applications.
We also plan to invest in expanding C Technologies’ commercial team to support broader global adoption of SoloVPE and FlowVPE, while continuing to deliver on the exceptional customer service for which C Technologies is well known.
We believe that our acquisition of C Technologies will contribute to our continued growth in upstream and downstream markets and build on our strong first quarter performance.”
Craig Harrison, President and CEO of C Technologies said, “We are very proud of the progress and impact we have made in biopharma over the past decade.
Our culture of technology innovation and customer centricity is what differentiates us and where we feel a real affinity with Repligen. We look forward to driving expanded, global adoption of our products, and continuing to advance SoloVPE and FlowVPE as standards in the industry for off-line, at-line and in-line protein concentration measurement”.
The bounce in the stock price pushed RGEN close to its 52 week highs, a possibly bullish chart pattern.
A Trade for Short Term Bulls
As with the ownership of any stock, buying RGEN could require a significant amount of capital and exposes the investor to standard risks of owning a stock.
To reduce the risks of a trade, an investor could purchase a call option. This allows them to benefit from upside moves in the stock while limiting risk to the amount paid for the options. However, buying a call option can also require a significant amount of capital and includes the risk of a 100% loss.
Whenever an option is bought, the maximum risk is always equal to 100% of the amount of spent to purchase the option. Since options cost significantly less than a stock, the risk in dollar terms will usually be relatively small to own an option.
To further limit the risks of the trade, an investor could use a bull call spread. This strategy consists of buying one call option and selling another at a higher strike price to help pay for the cost of buying the first call. The spread strategy always reduces the risk of an options trade.
This strategy is designed to profit from a gain in the underlying stock’s price but has the benefit of avoiding the large up-front capital outlay and downside risk of outright stock ownership. The potential risks and rewards of this strategy are summarized in the chart below.
Source: The Options Industry Council
Both the potential profit and loss for the bull call spread are limited. The maximum loss is equal to the net premium paid when the trade is opened. The maximum profit is limited to the difference between the strike prices, less the debit paid to put on the position.
This strategy could be especially appealing with high priced stocks where the share price and options premiums are often a significant commitment of capital for smaller investors.
A Specific Trade for RGEN
Every day, we scan the markets looking for trades with low risk and high potential rewards. These trades are available almost every day and we share them with you as we find them. Now, it’s important to remember these are trading opportunities in volatile stocks.
When we find a potential opportunity, we evaluate it with real market data. But because the trades are volatile, the opportunities may differ by the time you read this. To help you evaluate the current opportunity, we show our math and explain the strategy.
For RGEN, the June 21 options allow a trader to gain exposure to the stock.
A June 21 $70 call option can be bought for about $2.35 and the June 21 $75 call could be sold for about $1.45. This trade would cost $0.90 to open, or $90 since each contract covers 100 shares of stock.
The amount paid to enter the trade is the largest possible loss on the trade. This is generally true whenever a trader is creating a debit to enter an options trade. “Creating a debit” means there is a cost to enter the trade. You could create a debit by simply buying puts or calls to open a directional trade.
In this trade, the maximum loss would be equal to the amount spent to open the trade, or $90
The maximum gain on the trade is equal to the difference in exercise prices less the amount of the premium paid to open the trade.
For this trade in RGEN the maximum gain is $4.10 ($75 – $70 = $5; $5 – $0.90 = $4.10). This represents $410 per contract since each contract covers 100 shares.
Most brokers will require minimum trading capital equal to the risk on the trade, or $90 to open this trade.
That is a potential gain of about 355% based on the amount risked in the trade. The trade could be closed early if the maximum gain is realized before the options expire.