Who’s next? Divorcing the ASX can bring hidden payday

Simon EvansSenior reporterSep 15, 2023 – 2.27pm


The torrent of privatisation offers, private equity bids and delistings from the ASX are set to gather pace, says one fund manager, with companies with low levels of liquidity in their shares among the prime candidates.

Some of the bids, such as Rich Lister Raphael Geminder’s bid to buy out the remaining 50 per cent of struggling packaging company Pact Group, offered only a tiny premium. But investors should be on high alert for other unloved companies such as health group Healthia.

Private equity firm Pacific Equity Partners two weeks ago made a $260 million bid at $1.80 a share, an unusually large 85 per cent premium to Healthia’s last close before the offer.

The group, which runs a network of optometry, podiatry and physiotherapy clinics, had been in the doghouse for much of 2023, falling 33 per cent from late January before the bid.

Wilson Asset Management portfolio manager Oscar Oberg said there were likely to be more buyouts, privatisations and delistings as the sharemarket adjusted further after what had been a “crazy period” of the pandemic, ultra-low interest rates and then soaring inflation and a spike in rates.

He emphasised there was no foolproof, one-size-fits-all approach, but falling daily turnover in shares was one signpost to look for.

“I think we will see more of this,” Mr Oberg said.

He said companies where liquidity in a stock had shrunk had found the going very difficult.

“Any company that doesn’t have liquidity has really struggled over the past two years,” he said. Small and micro-cap stocks in particular were being overlooked by investors. “Those stocks will never re-rate to a proper value,” he said. This made them more likely to be picked off.


Mark Bouris’ Yellow Brick Road is in a trading halt ahead of more details and Raphael Geminder has put in a bid to buy out the remaining 50pc of Pact Group.

Mr Geminder’s bidding vehicle, Kin Group, said in its bidder’s statement that Pact’s liquidity in the past year had halved to 871,000 shares traded daily, and that being booted out of the S&P/ASX300 in March had been a blow, with institutions steering clear.

Private equity groups, with close to $40 billion of “dry powder” in Australia, are on the hunt and generally deliver strong premiums to investors.

Aged care home operator Estia, with 73 sites and 8000 staff, succumbed to a five-month pursuit by private equity group Bain Capital in early August, after an $838 million offer was endorsed by the target’s board. The agreed offer was at $3.20 per share. Estia closed at $2.14 on March 21, before Bain’s original approach.

Funerals group InvoCare, which owns brands such as White Lady Funerals and Simplicity Funerals, was pursued for five months by private equity group TPG before the InvoCare board last month endorsed a $12.70 per share offer, priced marginally above an original $12.65 a share proposal made in March.

Fruit and vegetable grower Costa Group is also a serious candidate to disappear from the ASX. A takeover offer from New York private equity firm Paine Schwartz Partners was made in May at $3.50 a share and there has been much back and forth since then.

But low liquidity and falling profits can mean that shareholders holding on for a turnaround might be caught waiting in vain. Mortgage-broking business Yellow Brick Road said on September 14 it was seeking to delist from the ASX. Founded in 2007 by entrepreneur and former host of Celebrity Apprentice Australia Mark Bouris, it has entered a trading halt ahead of more details.

But being a minority shareholder in a company where one investor has a stranglehold can also cause heartburn. Value-based clothing retailer Best & Less disappeared from the ASX boards in late July after businessmen Brett Blundy and Ray Itaoui won out with a buyout bid made by their BBRC vehicle which was actually below the last closing price before it became public. It had been a volatile two years as a listed entity for Best & Less.

Independent expert Deloitte said Mr Blundy and Mr Itaoui’s takeover bid was “not fair” to other shareholders “but reasonable”, putting a value of $2.03 to $2.43 on the company. They recognised the practicalities of the unique situation because private equity group Allegro had earlier signalled it would sell into the $1.89 per share offer.

Financial strife can also trigger a farewell to the ASX. Potash group Kalium Lakes was placed into the hands of receivers McGrath Nicol on August 3 after battling financial problems for months as it sought extra financial support for its slower-than-expected development at Beyondie Lakes in Western Australia.

Law firm Slater & Gordon succumbed to a 55¢ per share bid from private equity group Allegro Funds in April after a big fall from grace when a debt-funded acquisition of United Kingdom firm Quindell in 2016 turned sour.

Slater and Gordon was the world’s first law firm to be listed and had a $2.7 billion market capitalisation in the glory days, which shrank to just $100 million.

Source: AFR

P.S It's funny how I read this article. It states that the biggest concern of these companies are because of liquidity issues and low shares trading volumes. While this is a fund manager view on multiple companies, I never knew daily trading was halved to 871, 000. My experiences with this stock since 2017, I would say on average, it is only around 500 k volumes when it was at $3-$4 and as it goes down, volumes pick up to be around 600-700 k. Only when they shoot the news out, it came close to 2 millions share. I wonder where did Kin's Group pulled it out from? Are you talking about since IPO 2014 or from 2018 onward?

Second of all, low liquidity is due to Mr Ruffy's proposal of capital spending, so that they don't even have the money to pay dividend (since Feb this year), and now he is proposing to not only suspend dividend to pay down the debt if he can not privatise it, but also if he was to privatise it, only then that he would spend more money to fix the company. But he offers little premium compared to other delisted companies in this article. On top of it, Kin's Group proposal once taken it down is to perform full operation cost check to improve the company. I could only imagine not only 20% staff may get lay-off but I would envisage a few sites/factories will get sold off, include staffs and management too? I have seen his style before of how he did it with last CEO , CFO at PPG, and like the last contract manufacturing executive with PGH, whom found job as a CEO at somewhere else. I don't know why Sanjay was telling staffs 'business as usual'.

Thirdly, his record hardly showed anything about privatisation at all. Maybe he was talking about McPherson, Reject shop where they dismissed him from doing so. Yes, one go up, one go down but since he got too many business, I could only assume, there will be no more Pact, but all absorbed into Visy business, one way or another. Even if the article said, it probably will not restore full price again , I will serious doubt if Ruffy will ever IPO this ever again? So, why delist it to fix it when he was in charge all the time? Or why doesn't he think of selling it out to get hard cold cash or absorb the whole lot into Visy quicker and more sensible?

By the way, I wouldn't go crazy because we still have like 25 days left before the proposal expires, as analysis states