BGH, OTPP reengage with New Zealand's Abano

The two investors agreed to acquire Abano last year at an enterprise valuation of NZ$300 million ($202 million) by acquiring all outstanding shares at NZ$5.70 apiece. However, the deal was axed in March due to a material adverse change (MAC) clause following an escalation of COVID-19 lockdown measures in New Zealand and Australia that shuttered the bulk of the company’s operations.

The new offer contemplates a price of NZ$4.45 per share, which represents a 70% premium to the last closing price prior to the announcement of the offer. The proposed deal replaces the MAC clause with a list of price reduction scenarios that could see the offer lowered as far as NZ$3.70, or 35% less than the original offer last year.

Three of the price adjustment scenarios relate specifically to pandemic-related events in New Zealand, Queensland, and New South Wales. If triggered, they could result in price reductions of NZ$0.30, NZ$0.20, and NZ$0.15, respectively.

If the transaction goes through at NZ$4.45 per share, it would suggest an equity value of NZ$117 million for Abano, an enterprise value of NZ$256 million, and an implied EBITDA multiple of 14.8x. This compares to an equity valuation of NZ$150 million, an enterprise value of NZ$300 million, and implied EBITDA multiple of 8.9x in the original offer.

Abano shares spiked 53% to NZ$4.00 following that latest offer. The stock was trading at NZ$3.62 as of mid-afternoon August 31.

Abano is one of the largest operators of its kind in Australasia. As of the original BGH and OTPP bid, it had 23 practices in New Zealand and 116 in Australia, equating to 17% and 2% market shares respectively. Revenue improved 8% during 2019 to NZ$338.9 million, although profit declined 66% to NZ7.6 million due in part to a slowing macro backdrop in Australia and costs related to an IT build-out.

The investors’ decision to pull out of the deal followed gradual elevations of the COVID-19 alert status in Australia and New Zealand during the first half of the year, which eventually led to mandatory dental office closures in both countries. Abano stood down the majority of its staff and kept only a small number of practices open for emergency care.

“The dental industry is highly sensitive to the COVID-19 environment, with only limited emergency care able to be provided during level 3 and 4 lockdowns, and the pandemic has had a material impact on Abano’s business and cashflows this year,” Pip Dunphy, chair of Abano, said in a statement. “While Abano is expected to recover to pre-COVID trading levels, the timing of this remains uncertain and the risks of further impacts from COVID-19 can be expected in the near term.”

The Abano board has recommended shareholders proceed with the revised transaction in the absence of a superior proposal and given the offer price remains within an independent advisor’s valuation range for the company. A vote will be held in November.

Investors with pre-close deals suffering from the impacts of COVID-19 are increasingly exploring their legal options with regard to MAC clauses. There is little expectation that this will result in a widespread trend of disputes going to court, although price readjustments are seen as increasingly likely.

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• Topics
• Australasia
• Buyouts
• Healthcare
• New Zealand
• BGH Capital
• OTPP
• coronavirus
• covid-19