BGH seeks regulatory action amid battle for Australia's Virtus

BGH put Virtus into play in late December and CapVest got involved the following month. The company said it would enter exclusive negotiations with CapVest, but following a submission by BGH, the Takeovers Panel imposed a standstill. It found stipulations in the process deed that Virtus must not entertain or discuss any third-party bids represented a violation of fiduciary responsibility.

Both firms submitted revised bids in the past week. On February 28, BGH offered AUD 7.65 per share, less the value of any dividend payments. Virtus disclosed the bid on the same day, saying the board had yet to evaluate it. On March 1, the company announced that CapVest had countered with an offer of AUD 7.80 per share. This equates to a market capitalisation of AUD 667.2m (USD 493m).

Notably, the CapVest proposal comprises two options: a scheme of arrangement whereby it would acquire 100% of Virtus for AUD 7.80 per share; and an alternative structure, such as an off-market takeover bid, with a price of AUD 7.70 per share and a minimum acceptance threshold of 50.1%.

The latter alternative structure appears designed to confound any attempt by BGH to block the deal. On making its initial bid for Virtus in December, the private equity firm revealed it had built up a 9.99% interest in the target with an agreement in place for 10% more.

The Virtus board decided against further discussions with BGH, citing the superiority of the CapVest proposal. It added that CapVest is ready to enter into an implementation agreement by March 11, when the standstill imposed by the Takeovers Panel expires.

BGH’s second application to the panel argues that “at no stage has Virtus taken any step to facilitate a genuine auction process involving both CapVest and BGH,” despite the standstill providing an opportunity to do this. It is asking for an additional standstill of 20 business days, after which Virtus grants BGH access to the same virtual data room made available to CapVest.

Should BGH prevail, this would likely represent the last investment from the firm’s debut fund. It announced a final close on Fund II last week with commitments of AUD 3.6bn.

Virtus stock jumped 34.5% to close on AUD 7.01 on December 14 after BGH made its first offer. It reached AUD 7.20 after CapVest entered the fray in January, and then gained another 7.6% over the course of last week to close at AUD 7.80. As of mid-morning trading on March 7, it was at AUD 7.70.

Virtus was formed in 2008 when Quadrant Private Equity completed a management buyout of New South Wales-based IVF Australia, the country's largest group of dedicated fertility specialists. It went on to make two bolt-on acquisitions - Victoria-based Melbourne IVF and Queensland Fertility Group.

Quadrant invested a total of AUD 83.7m in the company and held a 43% stake on taking it public in 2013. The IPO was priced at AUD 5.68 per share and proceeds amounted to AUD 338.7m, with the private equity firm making a full exit.

On listing, Virtus operated 34 fertility clinics, 16 embryology laboratories, 17 andrology labs, six diagnostic labs and six hospitals nationwide, employing 80 fertility specialists. Now it employs 128 fertility specialists across 44 clinics, seven day hospitals, and 64 embryology, andrology, and diagnostic labs.

The company has a presence in five countries and completes nearly 24,000 fresh in vitro fertilization cycles every year.

Revenue for the 12 months ended June 2021 was AUD 324.6m, up from AUD 259m a year earlier. Over the same period, group EBITDA rose from AUD 46.2m to AUD 93.4m and net profit increased from AUD 42.6m to AUD 43.1m.

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• Topics
• Australasia
• Buyouts
• Healthcare
• Regulation
• Australia
• BGH Capital
• CapVest Partners