MIR

Please note, on 10/20/21 GS Acquisition Holdings Corp. (GSAH) merged with Mirion Technologies Inc. (MIR) and assumed its company name and ticker. The content of this idea will make reference to the original SPAC.

Publicly traded companies mentioned herein: Danaher Corp (DHR), Fortive Corp (FTV), Goldman Sachs Group Inc/The (GS), GS Acquisition Holdings Corp II (GSAH), IDEX Corp (IEX), Vertiv Holdings Co (VRT)

Highlights

The presenter discussed his bullish view on GSAH, Goldman Sachs’ second SPAC. Many investors are familiar with their first, Vertiv (VRT) which has been a big success. This second SPAC is a business called Mirion Technologies, which produces radiation detection and monitoring equipment for medical, nuclear and military customers. 

This is a very defensive business with high regulatory barriers. There’s a high cost of failure on technology like this despite Mirion having relatively low-cost products. There is also a good deal of untapped pricing power in the business. We believe the Goldman team that diligenced Vertiv views Mirion as an even better asset with higher margins and less cyclicality. Vertiv competes in the IT hardware space, which has annual price changes whereas Miron is selling to nuclear power plants and military medical facilities. The end markets don’t have the same degree of step-down pressure on pricing.

We view this as an undiscovered opportunity, where few investors have done the research aside from some industrial investors that have followed the career of Larry Kingsley, who has a very strong track record as former CEO of IDEX (IEX) Corp., as well as Pall Corp. before it got bought by Danaher (DHR). 

Mirion has high margins already – roughly 25% EBITDA margins. Additionally, they’ve identified 300bps - 500bps of margin expansion opportunity from better pricing, SG&A optimization, and better procurement. Kingsley has a lot of credibility given his prior experience at achieving these types of goals.

This company started in the nuclear space. Ten years ago, 70% of the business was nuclear, most of which is recurring – decommissioning and dismantling, and included work on new builds, which now represent 16% in the nuclear business. They did an acquisition in 2016, Canberra, which expanded their scale in North America and provided access to new distribution channels. Over the last 5 years, the company has invested heavily in their medical business with several acquisitions. Medical is now roughly 40% of the total business, a path which rhymes with Danaher, which started in a defensive business and then expanded to medical. In the Medical division, the company has repurposed radiation detection technology to all sorts of medical applications. In addition to this strategy, they are also now buying ancillary medical equipment businesses totally unrelated to radiation detection – the idea being that such businesses will open new distribution pathways for the company’s core products.

The company has annual revenues of roughly $700MM. They are the scale player in an industry where there are true scale advantages. If you’re a nuclear power plant operator and you currently rely on Mirion’s products, it’s highly unlikely that you will switch to another manufacturer when you need a replacement or new product. Simply stated, the cost of failure and barriers to entry in nuclear are so high and the cost of Mirion’s products relative to the overall budget are so low. Additionally, the company has expanded their business model to do calibration of after-market equipment. In the past if one of their products needed a repair, they would outsource that work and they’ve now brought that service in-house.

In summary, this is a company that should see low- to mid-single digit growth. As they shift more to medical tech, we see a multiple expansion opportunity. The stock is trading right at the deal price and 13x 2022 EBITDA compared to 20x EBITDA for competitors like Fortive (FTV) and other medical comps. The true comp within Fortive is Landauer, which they bought 5 years ago at 17x EBITDA at a time when multiples were much lower compared to today. 

As has been seen with a lot of SPACs, you have PIPE shareholders potentially selling their shares as soon as they can because they have so much exposure to multiple SPACs. Goldman has $200MM of the $900MM in the PIPE but they also put on a $125MM equity backstop in case of redemption pressure. From a technical perspective, this provides a higher-than-normal degree of support for a SPAC once the unlock happens.

Any catalyst coming up that would likely get more investors interested in the story?

The deal is supposed to close in the next few months. There was a temporary margin drag in EBITDA margin due to the Sept. 2020 acquisition of Biodex Medical Systems, a company with $40MM in revenue and break-even EBITDA. Management immediately took $10MM in synergies out of that business, so we should see that roll through next year. 

The margin expansion opportunity should come faster than investors realize. On the M&A front, the company can also do tuck-ins even though it is 3x net levered on the last 12 mos. basis.