There's always the potential that a promising mid-cap company gets bought out. Larger companies are often looking for ways to expand their opportunities and complement their existing operations. And for less than $10 billion, acquiring a mid-cap company can be an easier option than developing new competencies in-house or trying to compete against an already-successful business.
Two modestly valued healthcare companies that I can see being bought out within the next five years are Maravai LifeSciences (MRVI -3.45%) and GoodRx Holdings (GDRX -4.10%). Here's why both could be attractive acquisition targets.
1. Maravai LifeSciences
Maravai LifeSciences helps companies making messenger RNA (mRNA) therapeutics and vaccines. The highly successful mRNA-based COVID-19 vaccines from Moderna and Pfizer put a spotlight on mRNA, and that could open up more opportunities in the future.
Last month Moderna released results on its mRNA-based vaccine candidate for the respiratory syncytial virus that showed an incredibly high efficacy rate of 84%. And the personal cancer vaccine it has been working on has also demonstrated encouraging results when combined with Merck's top-selling immunotherapy drug Keytruda.
Although there will be a drop-off in demand for COVID-19 vaccines as concerns about the pandemic continue to subside, in the long run this is still an attractive growth opportunity in healthcare. Analysts from Grand View Research project that between 2022 and 2030 the U.S. mRNA therapeutic market will grow at a compound annual rate of 2.2%. That's not a terribly high growth rate, but it's still a positive sign that even despite waning demand for COVID-19 products mRNA will still continue to grow.
Maravai, which has worked with Pfizer and BioNTech (they're among its largest customers), has made a name for itself in the mRNA space. And at a modest $4 billion valuation, it wouldn't be a big price tag for larger healthcare company to acquire the business.
Its operations have been highly profitable, with the company achieving a profit margin of 26% over the trailing 12 months. Considering its good fundamentals and some attractive long-term potential, it would not be surprising if a company that's focusing on mRNA therapeutics didn't end up acquiring Maravai at some point.
Shares of Maravai are down more than 60% from their 52-week high. For investors bullish on mRNA, this is a stock that could have plenty of upside.
2. GoodRx Holdings
At $2.4 billion, GoodRx would come at an even cheaper price than Maravai. GoodRx also has a wider appeal because the telemedicine company can help everyone save money on prescription medication through its app and website.
The past year was a tough one for GoodRx, however, as it had an issue with a grocer not accepting discounts that impacted its sales (which has since been resolved). But prior to that instance, the company's growth rate was looking impressive.
GDRX Revenue (Quarterly YoY Growth) data by YCharts
As consumers look for ways to save money this year, GoodRx's discounts may be in high demand. And consumers looking to maximize their discounts may even be tempted to sign up for one of GoodRx's paid plans, which can unlock even more savings.
The company estimates that on average GoodRx users have saved 80% off retail prices for their medication. GoodRx also claims that 19 out of 20 to pharmaceutical manufacturers are customers, and so it already has some strong relationships in the healthcare industry.
The only downside is that GoodRx has struggled with profitability, incurring a net loss of $70.8 million over the trailing 12 months. However, with some better stability now that the grocer issue is resolved and possibly more demand this year with the risk of a recession looming, the company could deliver better numbers in future quarters.
For a company like an Amazon or Walmart that's trying to get deeper into healthcare and offer competitive discounts, GoodRx could make for an attractive buy. And it's a good buy in general for investors as well. While there is some risk with GoodRx as it battles its way out of the red, there's reason to be optimistic that, whether through organic growth or through an acquisition, the stock could deliver some terrific returns for investors who buy the stock today.
Although GoodRx is no longer at a 52-week low, it's still down 80% from the highs it reached a year ago.
