PBKM / Vita 34: In Process of Forming Largest Global Cord Blood Bank

Nils Herzing of Active Ownership Capital presented his investment thesis on Vita 34 AG (Germany: V3V) and Polski Bank Komórek Macierzystych S.A. (“PBKM”) (Poland: BKM) at European Investing Summit 2021.

Thesis summary:

Vita 34 AG and PBKM are the #1 (~39% of newly acquired samples) and #3 (~8% of newly acquired samples) players in the European cord blood market. This market is attractive given the increasing awareness of the benefits of cord blood storage and attractive economics from long-term customer contracts and high gross margins (>90%).

PBKM and Vita seek to combine their operations to form not only the undisputed leader in the European cord blood banking market but the world’s largest player in this space. The areas of synergies from such a combination are manifold and include (i) the ability to focus on market growth instead of starting to compete in the same region, (ii) cost and process optimisation, (iii) the ability to cross-sell the entire portfolio to a much larger customer base, and (iv) the ability to benefit from the growth of new adjacent businesses as both companies are extending their business models.

The merged company will have an attractive financial profile:

• pro-forma revenue of EUR ~65 million (LTM as of 3Q20) at normalized cash EBITDA margins of 20-22% before benefits from synergies and the identified improvement potential within both companies
• ~65% FCF conversion (based on a pro-forma average of the last three years) and a post-peak capex cash flow profile as PBKM just completed a large growth investment program
• the ability to grow the headline in the double-digit range annually until 2025, driven by (i) investments into organic expansion via penetration rate increases, market share gains, and venturing into adjacent businesses, as well as (ii) bolt-on acquisitions; considering the synergies, potential exists for the joint business to increase margins toward ~30% in the medium term
• a globally leading consulting firm has drafted a joint business plan that sees revenue more than double through 2025 while reaching EBITDA margins of 22-25% (excluding improvement potential and synergies other than revenue synergies in Germany)

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About the instructor:

Nils Herzing is a Partner at Active Ownership Capital (AOC). Prior to joining AOC as its first employee, Nils was the manager of a Family Office located in Regensburg, Germany. In 2013, he graduated with a B.A. in Management, Philosophy & Art. In the same year he founded the Herzing Value Investment GmbH. Afterwards, he earned an MSc in Finance from the EBS Business School and EDHEC Business School during which he passed the first two levels of the CFA Program. Since 2016, he has been a CFA Charterholder. In 2017, Nils co-founded ForkOn GmbH, the first vendor neutral SaaS forklift fleet management solution. Since December 2018, he has servered as a board member of the supervisory board of PBKM (Polski Bank Komórek Macierzystych) S.A.