Description

This is a SPAC situation currently trading under the ticker GSAH. Later this week, the deal will consummate and the company will trade under the new ticker MIR.

Summary

• Mirion is an industrial/healthcare company focused on radiation detection, monitoring and treatment. 44% of sales are medical related, 39% nuclear power and 17% diversified industrial
• It is in final stages of merging with a Goldman Sachs Asset Management SPAC that is being led by Larry Kingsley, the former CEO of Pall Corp and IDEX

o        Shareholder meeting scheduled for 10/19/2021 with deal closing expected on 10/21/2021

• The business is expected to grow mid-single digit organically and acquisitions are projected to add 5-10% to annual growth rate. Gross margins are ~51% and EBITDA margins are ~25% with 300-500bps of margin improvement opportunity
• The company is currently trading at 13.3x 2022 EBITDA or ~6.3% FCF yield. It also has a ROIC of ~34%

o        Industrial comps with similar growth, margin and end market exposure trade between 17-20x 2022 EBITDA

o        The average industrial company currently trades at 15x 2022 EBITDA or 5% FCF yield.

o        Healthcare comps trade between 22-30x 2022 EBITDA

o        In 2017, Fortive purchased Landauer, one of Mirion’s main medical comps, for 20.3x EBITDA

• We believe the current valuation is highly attractive and only exists because of SPACs being out of favor, lack of coverage, and inability of some potential holders to own the company pre-de-SPAC. We assume the strong margins, high growth profile and strong management team will cause the stock to trade closer to its peers. At 16.5x EV/EBITDA the stock is worth $13 or 25% upside.

Description

• Mirion is the leader in radiation detection, monitoring and treatment. It operates in 17 categories. They are #1 in 14 out of the 17 categories
• 72% of sales are recurring

o        53% replacement & maintenance

o        19% service

• Top 5 customers are 20% of sales

Industrial/Power

• Mirion provides radiation detection and analysis tools for power plants, labs and research facilities. It does that with field ready personal radiation detection and identification equipment for civil and defense
• It also provides contamination and waste management systems for plant decommissioning
• Nuclear power products are used for radiation detection and monitoring across the full nuclear power plant life cycle

Medical

• Mirion provides dosimetry solutions for monitoring the total amount of radiation medical staff members are exposed to over time
• Radiation Therapy Quality Assurance solutions for calibrating and/or verifying imaging, treatment machine, patient treatment plan, and patient treatment accuracy
• Radionuclide Therapy products for nuclear medicine in radiation measurement shielding, product handling, medical imaging furniture and rehabilitation products

Thesis

• We believe there are 4 key points that make this stock attractive both from a technical and fundamental basis:

1.       SPAC Dynamics

• The company was purchased by Charterhouse, a UK based PE firm, in 2015. Mirion is the last remaining asset in Charterhouse’s 9^th fund. Charterhouse’s need of a relatively rapid exit pushed them to merge with a SPAC vs. an IPO. The SPAC transaction will allow Charterhouse to receive ~$1.65bn of proceeds from the PIPE and trust. Charterhouse will own ~19.3% of Mirion following the transaction
• SPACs have had a rollercoaster year and currently investors consider the asset class toxic. Mirion like other pre-close SPACs has been trading close to trust value. We expect post deal close and shareholder rotation to see the stock trade more in line with the market and fundamentals
• GSAH is the second SPAC from Goldman Sachs Asset Management. The first SPAC that merged with Vertiv is currently trading at ~$23

2.       Larry Kingsley

• Larry who will be the chairman of the company is one of the most renowned executives in the industrials space
• Under his leadership IEX market cap doubled and Pall’s market cap almost tripled
• He also sold Pall Corp. to Danaher in 2015
• Just like Dave Cote (the former Honeywell CEO), who is the Chairman of VRT (Goldman’s first SPAC), Larry will be a hands-on Chairman and will be heavily involved in Mirion’s decision making going forward. He will also help with operational improvements that are the key to the 300-500bps margin improvement the company is targeting

3.       Acquisitions

• Mirion is very acquisitive – between 2019 and 2020 they acquired 8 companies
• Acquisitions have helped them build the medical business which was 9% of sales 2 years ago to 44% today
• They currently have 100 companies in their funnel ½ of them are medical companies
•  Historically, Mirion paid ~12.2x EBITDA pre-synergies for their targets or 6.0x post synergies
• The company expects a minimum of 5% of acquisition growth per year for the foreseeable future

4.       Margin Improvement

• The company currently has ~25% EBITDA margins. However, the recent Sun Nuclear acquisition is diluting margins by ~200bps. Synergies are expected to reduce this dilution over time
• The company expects to improve margins towards the ~30% range in the next several years
• This will be accomplished with the help of Larry Kingsley via improvement of internal processes, further implementation of lean, supply chain savings, footprint consolidation, more efficient R&D spend and operational leverage on 5-7% organic growth targeted

Valuation

• Mirion currently trades at a significant discount to industrial or healthcare peers

• It’s high margin profile, stellar ROIC and relatively cheap valuation on EV/EBITDA or FCF make the stock a very attractive proposition
• We see a clear path to 16.5x EV/EBITDA or 4.5% FCF yield and a PT of $13 or 30% upside

Catalyst

• De-SPAC is completed, stock starts trading regular-way (MIRW)
• Sell-side initiation reports within a month.
• Hype around nuclear power keeps picking up in the midst of the energy crisis.