From the Fin Review - Jan 2019
Costa Group sell-off draws private equity pitchesInvestment bankers have found a new listed target for cashed-up private equity funds and it carries all the hallmarks of other recent deals.
Bombed out - tick.
Formerly private equity owned - tick.
Short-term earnings weakness - tick.
The new name in pitch books is $1.7 billion fruit and vegetables grower Costa Group .
It is understood a handful of investment banks have been quick to test the interest of buyout funds and strategic names in light of Costa's earnings downgrade and sharp share price fall a fortnight ago.
The thesis is that it is a quality company with natural tailwinds and a handful of growth levers, both in Australia and offshore, and could come back to public markets or be sold to a large strategic buyer in a few years as a much bigger operation. There are no big strategic investors and what's seen to be a pragmatic board.
It's a pitch that resonates with buyout funds which watched one of their own, US firm Paine & Partners, invest alongside Costa's founding family earlier this decade and make a small fortune.
The problem is that despite
a 39 per cent one day sell-off in Costa's shares on January 10, it is still not cheap. It has gone from trading at 27-times profit to to about 20-times (or 11.8-times forward EBITDA on private equity's favourite metric EV-to-EBITDA) which, while cheaper than it was, is not the sort of number likely to please a buyout firm's own investors.
Add a 30 per cent control premium and you get back to 27-times pretty quickly.
The other thing holding back private equity funds is that they don't want to be seen to be too opportunistic. Going after public targets is frightening enough for the "private" investors, let alone when it is so soon after a share price fall. A bid would likely be quickly labelled "opportunistic" and reputations could take a hit.
So it's hard to see a buyout fund taking the bait in the near term. But bankers are keen to keep it on their radar and it does have the hallmarks of private equity targets before it such as Healthscope, Greencross and Scottish Pacific.
