It was a take-private slam-dunk, and the ninth business PEP has bought from the ASX boards.
So, what’s the secret to a seamless take-private?
A large amount of work before making the initial approach and the scale to pull it off, according to PEP managing director David Brown.
“They’re complex transactions and you don’t go in with 100 per cent certainty [of completing],” he says.
“You need a big team; if you don’t have a big team, are you really going to take the best part of 12 months or more to go through the whole process? It’s a big commitment.”
Target selection is also crucial.
Healthia was a hungry roll-up spanning optometry, podiatry, physiotherapy and hand therapy clinics with 340 businesses in Australia and New Zealand, and management’s eyes were bigger than investors’ stomachs.
Reading the situation, PEP turned up with an offer to fund the company’s growth plans away from the ASX.
It knew Healthia was in a tricky spot as a public company; there were only so many rights issues it could run and so much debt it could borrow to grow the way management wanted.
“It was a bit landlocked as a public company,” Brown says, adding its thesis is about speeding up Healthia’s strategy rather than changing it.
PEP ended up with a 75 per cent stake, effectively working as a capital partner for management and other existing shareholders, who retained the other 25 per cent.
That structure mirrored past PEP deals at meat pie maker Patties Foods (acquired in 2016) and IT services company Citadel Group (2020), both take-privates and similarly seamless transactions.
PEP’s Tony Duthie, another of the group’s 12 managing directors, says track record is also important.
Yes, it has missed out on some over the years such as Link Group (the second time around) and Tassal, but it has nine completed deals in its corner. And those nine deals show boards it can turn an indicative and non-binding offer into a buyout, he says.
The Healthia deal came as PEP finished 2023 with a bang.
“We were able to sign three new deals and deploy $700 million,” Duthie says of last year. The other deals were industrial and safety equipment distributor ATOM, and wealth management roll-up FirstCape, which saw PEP fund the combination of Jarden and National Australia Bank’s NZ wealth arms, both of which also took place in December.
“No one else in the market has been nearly as active,” Duthie says. “Our team’s depth and experience gives us a capability to hunt out those unique opportunities which others cannot.”
Those deals deplete PEP’s acquisition war chest, and the group has formally gone to investors to raise a new buyout fund, dubbed Fund VII, which is highly likely to be the biggest private equity fundraising by an Australian firm this year.
PEP is seeking to raise $3 billion, which is 20 per cent more than it raised for its Fund VI a few years ago. Investors were told the new fund’s strategy and investment team is unchanged from previous vintages, and its deal makers will target companies worth $300 million to $1.2 billion.
Duthie and Brown declined to comment on any fundraising activity.
The new fund comes as PEP returned all capital from its Fund V, raised in 2015, as we reported last July. Fund V returned 2.7 times on a gross multiple of money basis, and 2-times net of fees.
With PEP re-stocking its bullets, it’s probably only a matter of time before we see it back poaching from the ASX bourse. It typically buys one to three new companies a year, and most of those are either corporate carve-outs or take-privates.