The share price of Greencross Limited (ASX: GXL) has climbed around 26% today to $5.82 after The Australian Financial Review reported that an unnamed private equity group is chasing a substantial stake in the vet aggregator and pet care retailer.
This morning the company announced to the market that it believes an investment bank is seeking to acquire 14.99% of the shares on issue. The investment bank is likely acting on behalf of a private equity player that believes the group offers excellent value at current prices.
The AFR is reporting that probable private equity bidders could be US operator TPG or European rival BC Partners among numerous other candidates. Either way a foreign buyer looks likely as the Aussie dollar crumbles and whoever the bidder is may be lining up a full takeover attempt given that a stake up to 14.99% suggests the private equity business has designs on eventually gaining full control.
Greencross has in the past pursued an aggressive acquisition strategy fuelled by debt, which equated to $255 million of borrowings as the end of the last financial year. However, the business has been growing rapidly with revenues up 45% and EBITDA up 60% to $86.8 million in the last financial year.
Moreover its pet stores businesses have been posting organic growth via like-for-like sales lifting 6.2% in the last year, with Q1 2016 like-for-like sales also up 6%, as the business eyes another strong year of debt-fuelled acquisitive and organic growth.
It seems likely then its private equity suitor considers the stock great value at its rumoured bidding price around the $5.80 mark, which is a 26% premium to the price at which the stock had slumped to yesterday as market sentiment turned against its overall outlook.
Any private equity bidder looking to launch a full takeover would likely try to unlock value by restructuring the business, slashing costs and lifting margins before floating the business at up to double the value or more a couple of years down the line.
I expect shares will catch an updraught from here as investors are forced to reassess the true value of the business given the investor interest and relative to its future cash-generating potential.
Other operators in the roll-up space on the nose recently include healthcare imaging business Capitol Health Ltd (ASX: CAJ) and fast food franchisor Retail Food Group Limited (ASX: RFG). Arguably all three of these businesses offer value to investors after heavy sell offs in part due to the general market decline.
