The reality of today’s market is that there are many stocks which, for one reason or another, have very weak share prices.
Salt Funds managing director Matt Goodson said potential candidates could be those with ongoing strategic reviews.
Then there were those hard hit by the weak New Zealand economy and which might be near cyclical lows.
Goodson said companies with large strategic holders, who might move to mop up minorities or conversely might be sellers, could spark interest.
There were also companies that might lack scale and would be “highly synergistic” to a potential acquirer, he added.
M&A boost
Craigs Investment Partners senior research analyst Mohandeep Singh said renewed M&A activity had helped to put some life back into the market.
“Takeover activity is nothing new for our market, nor is it surprising given where some of our company valuations have fallen to,” Singh said in a research note titled The Chequebooks Are Out.
“While the prospect of losing companies from the listed market is daunting, these offers also help to remind investors of the inherent value available in some of our listed companies,” Singh said.
“With some valuations at multi-year lows, and interest rates on the cusp of falling from multi-decade highs, we would not be surprised if more takeover activity emerges in the coming months,” he said.
The imminent takeover of Arvida Group, which looked like a foregone conclusion, had reminded investors of the notable value available on the NZX, he said.
It’s not the first bit of takeover interest of late, but it is the first in a while that looked likely to get over the line.
Other unsuccessful attempts on our market have included Eroad, Rakon, Comvita, and the first Arvida attempt last December.
Singh noted that Tower had undertaken a “strategic review” in December to explore options to maximise value.
Listed companies being taken private always capture the headlines, but Singh said it’s worth noting that listed companies themselves have done plenty of acquiring from private hands.
In recent years, Ebos Group acquired LifeHealthcare for A$1.2 billion ($1.3b).
Infratil has acquired stakes in multiple businesses including One NZ, Bay Radiology, and Canberra Data Centres.
Vulcan Steel acquired Ullrich Aluminium, Freightways purchased Big Chill and Scales has made multiple acquisitions.
So, who else could be on the target list?
Clearly, some companies are very unlikely to be the target of takeover activity, given large blocking stakes.
“This is not to say that others could not build a position in these companies, but they are unlikely to be able to completely take over the business without the consent of these major shareholders,” Singh said.
In some cases, some companies cannot even have a shareholder build a substantial position.
For example, Mercury, Meridian and Genesis are all majority-owned (51%) by the Government, and specific legislation precludes any other shareholder from building a significant position in these companies.
This leaves many smaller companies, which do not have a major shareholder, as potential targets.
“While not always the case, in most instances takeover targets are those companies which have performed poorly, and their share prices have significantly lagged the broader market.
“In essence, acquirers are looking for companies where they see current valuation as not fully reflecting the long-term prospects of a company,” Singh said.
“There is no rule of thumb for picking the next takeover target as it all depends on what a specific acquirer is looking for,” he says.
“But a depressed share price is typically near the top of a list of criteria.”
Bell Gully on Arvida
Bell Gully is advising Stonepeak on its agreement to buy retirement village operator Arvida by way of a court-approved scheme of arrangement.
Stonepeak has entered into a definitive agreement to acquire all outstanding Arvida shares at $1.70 a share in a transaction which implies a market capitalisation of $1.243b and an overall transaction value of about $2b when including the refinancing of Arvida’s debt.
Stonepeak is an alternative investment firm specialising in infrastructure and real assets with about $71.2b of assets under management.
Arvida owns and operates 35 retirement villages nationally.
Meanwhile, the details surrounding The Warehouse are still sketchy.
As it stands, all there is is a proposed scheme of arrangement from private equity firm Adamantem Capital Management involving a potential takeover at $1.50 to $1.70 a share.
Forbar adjusts NZME outlook
Brokers Forsyth Barr said recent data points suggest the economic backdrop in New Zealand has deteriorated, which is likely to contribute to softer trading for NZME in 2024.
The broker said NZME, publisher of the New Zealand Herald, is highly exposed to the domestic economy, with advertising contributing about 70% of total revenue.
“As such, we lower our earnings estimates for 2024, with reduced publishing and audio expectations partially offset by a stronger contribution from OneRoof.
“Property listing volumes have rebounded in 2024, providing a strong tailwind for OneRoof’s performance alongside successful strategic initiatives undertaken by NZME.”
In aggregate, Forsyth Barr’s 2024 earnings before interest, tax, depreciation and amortisation estimate fell by $2.3m to $57.9m, near the bottom of management’s guidance range of $57m to $61m.
“We now anticipate a level of conservatism from NZME’s board as it reviews the capital position, potentially delaying capital returns until the New Zealand economy and advertising markets have settled,” the broker said.
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.
