Rich pickings for cashed-up private equity: Valuations make for timely takeover action

Mon 13 Jun 22, 3:59pm (AEST)

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Key Points

  • Private equity accounted for a quarter of all transactions across M&A markets by value this year
  • Private equity is currently sitting on a $2.5tn war chest for future deals
  • A lot of ASX-listed stocks are sitting on significant discounts to consensus price targets

With so many stocks currently trading with attractive valuations following recent sell-downs, a growing number of stocks have come under the radar of potential acquirers and more opportunistic takeovers are expected later this year.

Included amongst recent high-profile takeover offers were (an albeit short-lived) bid for Appen (ASX: APX) by a Canadian telco, an offer for church donor app Pushpay (ASX: PPH) by two existing shareholders, and an $8bn bid by a Mike Cannon-Brookes and Canadian asset manager, Brookfield for AGL (ASX: AGL) which management swiftly rejected.

Shares in APA Group (ASX: APA) also received a kicker back in May following news that suitor, US investor Global Investment Partners, was kicking the tyres on the gas and energy infrastructure business.

Two potential targets

What’s evident within recent takeover offers is the growing interest in private equity money picking off stocks while they’re [relatively) cheap.

While there’s no shortage of stocks across different industry sectors that could be on the radar of private equity, potential takeover targets highlighted by analysts at NAB include transport and logistics group Brambles (ASX: BXB) and Tasmanian whiskey company Lark (ASX: LRK).


Brambles has had preliminary engagement with CVC Capital Partners around a potential bid, and Citi estimates investors could ask for at least $13 per share.

By comparison, Credit Suisse believes potential fair value is around $15.20 based on FY24 earnings.


While the stock is marginally up (2.74%) over the last 12 months, the price is a little under half the $5.50 it was trading at in November 2021.

Investors should note while the recent drug scandal – involving recently resigned CEO Geoff Bainbridge - wiped $70m off Lark’s value, the company’s fundamentals don’t appear to have changed.

Given that Lark’s first half results were in-line with Ord Minnett's expectations, the broker expects sales growth and margin expansion in the second half.

Other potential takeover targets

Based on earnings yield, free-cash-flow (FCF) yield, and relative share price underperformance, broker Wilsons recently identified five potential takeover targets:

Private equity is lurking

Based on Refinitiv data, the value of private equity-backed M&A targeting local companies – which soared to a record $40.1bn in the first five months of the year - accounted for just over a quarter of all transactions across M&A markets by value this year.

The predominance of private equity money is reflected in the recent $30bn bid for Ramsay Health Care (ASX: RHC) by a consortium of investors led by US-based KKR & Co.

Despite the $88.00/share offer from the KKR-led consortium, Morgan Stanley notes greater downside risk to the share price compared to upside from the offer price (assuming the bid succeeds).

Sandy Mak, head of corporate at Corrs Chambers Westgarth doesn’t expect RBA tightening to put a lid on inflation to derail the M&A bonanza any time soon.

Given the different dynamics compared to previous M&A cycles, Mak suspects the current cycle will take much longer to turn down.

What’s likely to add to the robust pace of deal-making in the $2.5tn war chest private equity fund managers are currently sitting on based on February data from S&P Global.

Written By

Mark Story


Mark is an investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics and a diploma in journalism. Mark has worked on 70-plus newspapers and financial publications across Australia, NZ, the US, and Asia including: The Australian Financial Review, Money Magazine, Australian Property Investor and Finance Asia. Mark is passionate about improving the financial literacy of all Australians through the highest quality content. Email Mark at [email protected].

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