Ann: Ceasing to be a substantial holder, page-22

Maybe private equity also lurking?!



Private equity cash lures banks

BRIDGET CARTER JANUARY 20, 2019

Australian private equity funds are sitting on their biggest pile of cash ever, prompting deal-hungry investment bankers to start looking where the next buyout might emerge.

A late run of deals came at the end of 2018 when KKR pushed on with its $2 billion bid for MYOB. Britain's Apax Partners revealed it would pay $1.8bn for New Zealand-classified business TradeMe while TPG offered $675m for Greencross, the vet and pet shop in Australia. The investment bank Credit Suisse beat each of their larger rivals on those three deals and acted as an underwriter in each of them.

The private hospital operator Healthscope is at the centre of a $4.5bn takeover tussle between Brookfield private equity and BGH, which remains keen on a deal at a much lower value. An update on Brookfield's bid could be delivered to the market today, after the exclusive due diligence agreement expired on Friday.

There's an estimated $7bn in ''dry powder'' sitting in private equity funds accounts at the moment and the question now is which companies could come under offer next. Several local investment banks have put together "wishlists" of targets they believe private equity funds should start looking at.

It seems the most important factors for funds, when contemplating a public-to-private deal, are an under-pressure share price, good underlying cash flow, an industry considered to be in demand (which rules out retail) and growth options.

On that basis, bankers have pointed to companies like Mortgage Choice, insurance broker Steadfast Group and AUB Group as potential targets after the royal commission's final report is delivered on February 1.

Some think the mortgage broking industry could be in for a reprieve from the deluge of expected regulatory changes heading towards the financial services industry.

The government, especially a Labor government after the May election, is not expected to hand power back to the big four banks in the mortgage market.

On that front, Mortgage Choice is considered a prime candidate for a private equity-led buyout.

The stock is trading at $1, the lowest point in close to a decade, which means it meets the first requirement of a share price under significant pressure.

In the industrial sectors, bankers point to Orica, Nufarm and Pact Group as potential targets.

A scan of poorly performing stocks also brings up a number of companies that could be on the radars of buyers soon.

In the past three months, BWX's share price has collapsed, on an absolute basis, by 59.8 per cent, the troubled Blue Sky is off 57.3 per cent, Sundance has lost 49.4 per cent and Kogan.com is down 49.4 per cent.