Australia take-privates: Logical targets

Should the proposed privatizations of Healthscope and MYOB proceed, the two companies will find themselves retracing footsteps from a decade ago. The sums at stake have increased dramatically.

MYOB’s private equity journey began in 2008 when a consortium led by Archer Capital acquired the listed accounting software developer for A$450 million ($302 million). Bain Capital completed a A$1.3 billion secondary buyout in 2011 and listed the company four years later. KKR took out Bain’s remaining interest last year, accumulating a 19.9% stake in MOBY before launching a takeover bid. The board has agreed to a privatization at a valuation of A$2 billion.

Hospital operator Healthscope was delisted in 2010 by TPG Capital and The Carlyle Group following a A$1.99 billion acquisition. It returned to the Australian bourse in 2014 at a valuation of A$3.83 billion. Five years on, BGH Capital – a private equity firm led by Ben Gray, who previously ran TPG’s Australia operation – sought to repeat the trick with support from several LPs, including existing shareholder AustralianSuper. Brookfield Asset Management appears to have prevailed with a A$4.38 billion bid.

Neither company appears to have distinguished itself in the eyes of public market investors. MYOB was trading at a 22% discount to its IPO price when KKR made its move last October, while Healthscope was down about 3% when BGH began its pursuit 10 months ago. The ASX200 Index has gained approximately 13% over the past five years. 

It isn’t necessarily a coincidence that private equity investors have returned to these two companies.  Software and healthcare are classic PE targets, and presumably, the investors believe they can generate more value in a private market context. Indeed, sluggish public equities are a key factor in the record 10 PE-backed privatizations in Australia and New Zealand last year (of which six are a shareholder vote away from closing). The annual average for the preceding 10 years was three.

However, the spike in activity should also be considered in the context of private equity fundraising. Australia has always been an important market for most pan-Asian GPs as one of the relatively few destinations that can deliver large-scale leveraged buyouts. While big-ticket deals are increasingly available across the region, the growth in fund size with each vintage means that getting nothing out of Australia could leave a large amount of equity to be deployed elsewhere.

Six of the 10 privatizations announced in 2018 were worth more than $500 million, while four top $1 billion. Strip out these transactions, as well as a handful of real assets-related deals, and only three investments surpassed $500 million. This compares to six in 2017. Public companies are – in theory – available to any buyout investor with the means and motivation to pay the right price. When there is a surfeit of capital to be put to work, that is where investors will look. 

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• Topics
• Australasia
• Buyouts
• Australia
• KKR
• TPG Capital
• BGH Capital