Selling the stake in Alpha Mos
M&A /CORP. ACTION
FACT

DMS announced 23 June that it was in negotiations, on an exclusive basis, with two funds (Jolt Capital and Ambrosia Invesments) with a view to selling its stake in Alpha Mos (42.94% of equity and 49.94% of voting rights) for €0.45 per share or €6.5m. On the evening of 27 June, the group announced that the deal had been finalised.


ANALYSIS

The news comes as a small surprise. As a reminder, Alpha Mos is engaged in helping industrial clients to speed-up product development (sensory benchmarking of competitive products, chemical and sensory screening, measurement of bitterness…), to improve quality (control of odour, taste or visual conformity, suppliers’ monitoring based on specifications, consistency of odour/taste/visual conformity at all sites…) to facilitate the marketing of products (simplification of consumer tests, quantification of sensory attributes…). DMS acquired the stake in Alpha Mos in 2014, as an opportunistic move since the company’s markets are quite different from DMS’ core businesses. To that extent, the disposal is not as surprising as it may seem: the price offered looks fine (back in FY14, DMS paid €6m for a majority stake, later diluted by options and a capital increase). Also, note DMS had sold 2.3m shares of Alpha Mos to its former CEO in FY15 and thus the disposal price of €6.5m compares to a c. €5.1m “real” investment (initial investment less 2.3m shares sold in FY15 at €0.40/share, or a real return of about 25% in less than three years). We thus believe that DMS has seized the opportunity to exit to focus on core businesses and other opportunities, at a time when DMS Biotech and DMS Wellness are ready to kick in (see our previous comments). This also confirms our view that management has a very flexible and opportunistic approach to businesses outside its core Imaging segment and is ready to invest/divest in any side business as opportunities arise. As long as the prospects of new investments are attractive and that divestments are achieved at decent prices, i.e. including significant capital gains, we do not mind these initiatives.


IMPACT

We will deconsolidate Alpha Mos (as of July 2017) and add the proceeds of the disposal into the group’s cash position (less the net cash of Alpha Mos which is so far consolidated). Altogether, our price target should go up at first glance after the deconsolidation of the stake in Alpha Mos given the price DMS is about to get for it. In other words, the €6.5m price is certainly at least equal (and in fact higher) than the Alpha Mos contribution to our DCF price, keeping in mind that Alpha Mos is still a turn-around story.