You could be forgiven for thinking that the Australian market’s new dream team, private equity firm BGH Capital and the AustralianSuper, are engaged in some sort of bizarre game of ASX Sim City.
First came the pair’s unsuccessful bid for hospital operator Healthscope. Now they’ve lobbed an offer for tertiary education provider Navitas, which works in partnership with universities in Australia and other parts of the world to prepare students to college.
Add in an energy company and a supermarket chain and you’d have the makings of a thriving metropolis.
All jokes aside, the initial targets of BGH (led by Ben Gray, Robin Bishop and Simon Harle) and AustralianSuper do speak to two of the macro trends that have driven the Australian economy, and will likely continue to do so – healthcare and education.
There are certainly a lot of parallels between the $6 billion bid for Healthscope, lodged in May and dismissed soon after, and the $2 billion bid for Navitas, which was presented to the target’s board after the market closed on Tuesday, and announced first thing Wednesday.
At Healthscope, the premium on offer was 25 per cent. At Navitas, it’s 26 per cent.
In both cases, AustralianSuper has committed completely to the BGH bid, and will not entertain other offers that may emerge for the business. The Navitas deal is pitched as a scheme of arrangement, as was the Healthscope offer. And again, BGH wants a unanimous agreement from the board.
The new wrinkle to the Navitas deal is that BGH has secured the support of company founder and Rich 200 member Rod Jones, who has agreed to sell half of his 12.6 per cent stake into the deal, and roll the other 50 per cent into the BGH consortium.
“I believe this is a fair and equitable deal, struck at an appropriate premium to Navitas’ prevailing share price, and is in the best interests of all Navitas shareholders,” said Jones, who will remain a non-executive director if the bid is successful.
“I remain passionate about the Navitas business and the education sector, which is why I have agreed to vend half my shareholding into the new holding company.”
(In September, The Australian Financial Review‘s rich list editor Julie-anne Sprague asked Jones what ASX company he would most love to own. “Nativas, of course,” he answered.)
BGH will be hoping that Jones isn’t the first Navitas founder to warm to its offer.
A number of other company founders still have stakes on the Navitas register, and the BGH camp is confident its offer will win over a few more of these old hands, as they seek the chance to revitalise the business.
That the BGH offer of $5.50 a share represents both a 35 per cent premium to Navitas’s 12-month low, and a 2 per cent discount to its 12-month high, says plenty about the rollercoaster ride that investors have been on in recent times.
That low came in July, when Nativas announced $130 million of write-downs and places to close a health training provide in Australia because of changes to vocational education funding. The company also announced the closure of colleges in Britain and the United States, with further divestments possible.
But Navitas’ bigger problems date back to 2014, when the loss of the company’s biggest and longest-standing agreement, with Sydney’s Macquarie University, saw Navitas shares plunge 30 per cent from $7.04 to $4.66.
The BGH camp will argue that this is a good business that needs to be run better to turn it into a great one – and recent history suggests private ownership is the best way to make the changes necessary.
At this point, the Navitas camp is understandably digesting both the bid and the fact that one of the company’s directors – and arguably its spiritual leader – has defected to the bidding team.
The early murmurs out of the company’s Perth headquarters suggest the premium on offer doesn’t exactly represent a knockout bid. Although the counterpoint to this is Jones’ preparedness to take money off the table does suggest he sees value in a price that represents around 15 times earnings before, interest, tax, depreciation and amortisation.
Finally, the bid takes away any doubt that AustralianSuper is very serious about using its equity stakes in businesses to take companies private – with all the controversies and potential conflicts that involves.