Strategic partnerships have inherent challenges between cooperation and competition. Good leadership and defined organizational roles and supporting structures are crucial for success and are usually based upon the defining capabilities that each partner brings to the table. The effort should be synergistic. Ostensibly, Elite would have a quality product that they can produce efficiently. However, they lack the marketing and sales capabilities that a properly vetted and selected partner would add. Many have suggested Actavis as the likely partner and there is much about them that makes sense. But, NH would be remiss if he did not seek a partnership with a firm that offered the best complementary and synergistic organizational capabilities to enable Elite’s success.
A beneficial aspect of seeking a partnership from among the many firms in the industry would be that the nature of the discovery process may well generate awareness and interest enough so that a big firm would see the forecasted economic benefits of a buy out. So, while we may chafe at the pace of things, and that March did not pan out as we hoped, the relative quiet may actually be instructive and ultimately beneficial for investors. Remember, there was a reason Elite decided to have a valuation completed. Despite the relative weakness of the p/s compared to the valuation and irrespective of whether it was done by McKinsey & Co. or Bob’s Service Station and Economic Valuations, it serves as a hard parameter template for discussion and negotiations, with its real value lying in the eyes of those considering the choices of what to do with Elite.
As I have indicated previously, if we take a midpoint of the valuation (2.10/2.75 = 2.43), factoring in the informal $4-5 suggested by NH with a successful ART product, and a very reasonable 30-40% premium, we could see a buy out THIS YEAR in the $6-8 range. Longer term, as has been pointed out, with more products, only increases the cost for an acquisition. Anyone familiar with the M&A process is well aware that timing is critical and acquirers always seek to acquire as cheaply as possible. A sober viewing of this situation would leave a strategist convinced that now is the time to buy the company.
