Overnight we were greeted by the news that TPG Capital we bidding a 41% premium for a 10% stake in Australia’s largest funeral provider – the first impression being that’s a big premium, the private equity group must be keen and we believe a full takeover bid appears a real possibility. UBS was chasing the 14.4 million shares at $12.65 which values IVC at $2.2bn including debt.
- It’s an interesting approach by TPG saying they may consider a full bid if they can secure the first 10% – potentially a fishing exercise to test the waters following a decent earnings miss at their recent result, i.e. this screams of an opportunistic bid given share price weakness.
We have steered clear of IVC over recent years concerned by its ‘roll-up’ strategy that works by acquiring unlisted players for a lower multiple than the larger operative and benefitting from a valuation uplift once integrated. This works for a while but usually, competition comes to play and this was the case for IVC when Propel Funerals (PFP) was listed on the ASX late in 2017. It wasn’t a coincidence that this coincided with the top in Invocare’s share price.
Worth noting however that private equity enjoy buying into this strategy when it has problems that can generally be solved behind closed doors, vet business Greencross is a recent example here.
MM believes TPG Capital is being opportunistic with IVC after recent earnings headwinds
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