Ebos' failed acquisition of Greencross was seen as too big a bite by some investors. Photo / Getty Images
It could have been the biggest deal of the year - if it had happened.
Ebos Group went into a trading halt on Thursday last week amid media speculation that it was in talks to buy private equity-owned Greencross.
Dual NZX- and ASX-list Ebos is a wholesaler and distributor of healthcare and petcare brands including Masterpet, Black Hawk and Vitapet, and owns a half-share of retailer Animates. An acquisition of pet and vet business Greencross would seem to have natural synergies.
But after nearly a week of trading halt extensions, Ebos announced on Wednesday that there was no deal. According to the Australian Financial Review, the deal would have been worth A$3.75 billion ($4.07 billion) and have required a capital raise of up to A$2b.
Shane Solly, portfolio manager at Harbour Asset Management, said deals were often leaked in the Australian media as a way of raising the pressure for speedy action.
“Unfortunately, we see this time and time again in Australia where transactions get leaked early and unfortunately it doesn’t always work - clearly, other counterparties involved on the other side have put pressure on Ebos and that has proven to be unhelpful.”
Greencross was taken private in 2019 by TPG Capital, which then sold a 45 per cent stake last year. Understanding what has happened to the business since it was taken private would have required time and may have been a reason for things being drawn out.
While the potential A$2b capital raise would have been a big bite for investors to digest, one investor told Stock Takes they would have been happy to support the deal.
Other shareholders may have been reluctant to reach so deep into their pockets. Sybos Holdings, which owns 16.17 per cent of Ebos and is the largest shareholder, didn’t fully participate in its most recent capital raise.
Ebos has a strong track record of finding bolt-on acquisitions and being patient about getting results. It may be that something still comes out of the talks. Ebos could buy the other half of petcare retailer Animates from Greencross, which would be a much smaller deal as it makes up only a small part of that company.
Fisher Funds is back in the news again with a report across the Tasman suggesting US private firm TA Associates is looking to exit its 34 per cent stake in the Kiwi investment firm.
The Australian Financial Review said TA Associates is pitching its stake to a bunch of investment banks, including Goldman Sachs.
Fisher Funds chief executive Bruce McLachlan declined to comment.
”Fisher Funds does not comment on minority shareholder matters and particularly processes that may or may not result in any shareholding change,” he told Stock Takes.
The AFR noted that any sale would probably be complicated, given that TA Associates owns its 33.9 per cent stake with Toi Foundation (formerly TSB Community Trust) – set up to benefit the Taranaki community – owning the other 66 per cent.
Last year Toi handed out $22 million in grants to the Taranaki community.
TA Associates bought in six years ago and since then Fisher has expanded, most recently acquiring Kiwi Wealth for $310m.
That deal made Fisher New Zealand’s largest specialist wealth management provider, with $22b under management, including $13b in KiwiSaver funds.
Fisher has been feeling the effects of weaker sharemarkets, with revenue falling by 32 per cent from $199.4m to $134.8m in the year to March 31, 2023.
Its performance fee earnings slid from $77m to zero, while management fees rose to $137.3m from $120m.
Net profit after tax was $25.7m, down from $93.9m, which included four months of operation of its Kiwi Wealth acquisition.
News of a potential ownership change comes a week after Fisher announced that Simon Power, a former Cabinet Minister and the ex-head of Television New Zealand, is to be its next chief executive.
The AFR noted that when TA Associates bought its stake in Fisher, it had to fight off Pacific Equity Partners and Jarden in the process.
The retirement village stocks seem to be on the up again, or at least there is a view that the worst may now be over for them after a very tough run in recent years.
Craigs Investment Partners analyst Stephen Ridgewell this week upgraded his view on the sector from neutral to overweight, based on low valuations, improving lead indicators from the housing market and a reduced risk of equity raisings.
Ridgewell expects this month’s reporting season to remain tough for the sector but said valuations were attractive from a medium-term perspective.
“The retirement sector is interest-rate sensitive and has de-rated significantly since rates started to rise in earnest from late 2021, and again so since September, with the sector on average trading at a c50 per cent lower multiple of book values compared to the prior five years.
“To be clear, we don’t see the sector returning to prior valuation levels, but do see upside, particularly for those able to demonstrate added value from their development strategies.”
Ridgewell said the key catalyst for improved investor sentiment would be house price growth.
Harbour’s Solly said pockets of the housing market were improving, but it was still mixed.
He said the village operators had wound back their development rates to protect cashflow. While retirement home sales were still trucking along, it was the sales that went to settlement that counted, and in most cases, people still had to sell their family home to fund moving into a village.
Solly said the care home parts of retirement village businesses had been particularly challenging through Covid. Staffing costs had risen sharply and keeping people was a challenge. But that pressure was starting to reduce.
“We are starting to see a slight turning point there, it’s early days and we are seeing stabilisation in residential property.”
Ridgewell’s top pick for the sector is Summerset, and Solly said he was also a fan of that company.
“Summerset’s mix is less high-density builds and a lower proportion of care. Care is an important part but has been a hard place to make a decent return.”
Respiratory products maker Fisher & Paykel Healthcare (FPH) is due to report its first-half result next Wednesday, but broker Forsyth Barr is not expecting big surprises.
“Looking ahead, we expect minimal changes to the company’s full-year guidance, of revenue of $1.7 billion,” Forbar said in a research note.
“But in light of recent trends and currency movements, on balance risks appear more downside skewed than upside.”
The company’s first-half guidance, supplied at the annual meeting in August, was for revenue of around $790m and a net profit of $95m to $105m.
“Consensus and our estimates are at the top end of the net profit range,” Forbar said.
“In light of recent data and competitor trends, we see minimal risks to guidance.”
Currency moves over recent months were favourable but the company’s full-year guidance required a stronger second half than was typical.
On gross margins, FPH’s guidance assumed a 200-basis-point increase in the second half of 2024 compared with the first half.
“We give FPH the benefit of the doubt, but a swift improvement is required,” the report said.
Over the coming months, FPH, is set to launch its “Airvo3 " and 950 hardware systems in the US.
“We remain particularly optimistic on the Airvo3′s prospects, which should help drive ongoing solid nasal high flow adoption through broader areas of the hospital.”
FPH is not perceived as a dividend stock, but Forbar noted that it had not cut its interim dividend since 2005.
“We expect the board to at least retain the dividend at 17.5 cents, driving a lift in the pay-out rate to 100 per cent versus guidance of 70 per cent.”
- additional reporting Duncan Bridgeman and Jamie Gray.
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