Licensing v's M&A outright sale for SNG8 May 2021 08:27
Just been reading the excellent CCO thread and the important secondary comments on potential licensing deal or takeout M&A which deserve their own thread.
Ghia and others mentioned the very likely outcome as an out licensing transaction. I believe this is the most likely value crystallisation event for SNG rather than a full take out transaction but not a given obviously.
Why? Its to do with the highly uncertain future commercial revenues / profit flows and emerging (unknown) technology lifetime and / or future line extension possibilities for SNG from its "one product - but potentially very lucrative single asset company" profile.
Although there are ways to flexibly engineer a full acquisition headline consideration with the likes of short term earn-out structures or payments, M&A buyers may struggle to possibly maximise the legacy SNG shareholder returns that could be generated over time via alternative piecemeal segmentation of each market application (e.g. covid, Copd, asthma other viral infections, or indeed targeting genetic defects of interferon metabolism seperately etc. ), and of course global geographies.
From a buyer perspective, it would be very difficult to arrive at one single point estimate of value for the whole company right now as an emerging technology, which means if they get it materially wrong and over- pay, that means some very heavy future write downs or accounting impairments in the allocated Intangible asset values of the target business and accounting goodwill writeoff in the acquirer books. So any buyer may under-cook its price offer to avoid such a situation or future risk. Also the lead M&A corporate finance director of the acquiring firm could be under massive scrutiny internally if they screw up the pricing in an over payment context.
On SNG's side it's far easier to "sell" pieces of your market opportunity discretely as you characterise and clearly evaluate their attractiveness and economics over time and find best suited counter parties to each transaction or to do some sort of customised licensing transaction leaving wholly owned earlier stage emerging or unknown opportunities" in SNG for future exploitation.
This generally would yield better alignment of value of the business assets to what you flog them for over time. However, if a very full M&A offer comes along the Company should take it.
That's my view anyway but either way by year end we should know.
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