The probability of the acquisition being completed has dropped
The result of the investigation came as a surprise to the parties involved and to us as well. It is possible that the FCCA’s methodology to assess the market size has varied from the methodology used by the companies (e.g. public vs. private sector). Anyhow, we see that the likelihood of the acquisition being completed has decreased significantly thus we return to see Pihlajalinna as an independent service provider also in the future. During the process, Pihlajalinna has continued to develop its business as usual. The company has for instance developed its digital services and other medical services. Additionally, the company has a strong background of cooperating with municipalities. Due to the economic difficulties, the public sector has seeked more efficient ways to produce effective services (e.g. by outsourcings) which has benefited the private sector. The political interests have however shifted more towards the public side meaning that the landscape has become more negative towards private social and healthcare service providers.
“HOLD” with TP of EUR 11.0
We have not made changes to our estimates but we see that the probability of transaction being completed is significantly lower. On our estimates, the company trades at 20E-21E EV/EBIT multiple of 19.5x and 12.9x which translates into 15-30% discount compared to the peers. We keep our rating “HOLD” with a new TP of EUR 11.0 (16.0).
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