Is a bidding war about to break out over Greencross Limited?

Credit: Ryan Smith

EBOS Group Ltd (ASX: EBO) is reported to be joining the race for pet retailer and veterinarian group Greencross Limited (ASX: GXL).

According to a report in the Australian Financial Review, New Zealand-based health and animal care group EBOS could be about to join US private equity giant TPG Capital in the race to pick up Greencross.

EBOS primarily is a pharmaceutical wholesaler in Australia and New Zealand, competing with the likes of Australian Pharmaceutical Industries Ltd (ASX: API), but also holds a 50% share in the Animates pet care retail chain with 30+ stores in New Zealand. Greencross holds the other 50%.

Greencross is often thought of as a veterinary aggregator, but its major business these days is now pet care retailing; brands like Petbarn and City Farmers have over 200 retail stores. In the 2015 financial year (FY15) the retail stores brought in revenues of $478 million, while the company’s 132 vet clinics delivered revenues of $166 million.

TPG was aiming to gain around 15% of Greencross shares on issue in a raid staged earlier this week, but reports suggest the PE firm fell well short, picking up just 3%.

Greencross shares have dropped more than 36% in the past year before news emerged that someone was trying to build a stake in the company.

One of the attractions of Greencross’s business was its exposure to the booming pet care/health industry. One of the tailwinds being that many of our four-legged friends are treated more like a part of the family than as a pet. People have become more aware of our pets dietary and health requirements, and, as a result, are spending more in the sector.

One of the key strategies in the sector has been the merger of pet services such as grooming, dog washing and veterinary with retailing. Greencross estimates it has just 8% of the $8.7 billion market, showing there is plenty of room to grow.

Foolish takeaway

With the share price halving over the past six months, Greencross was trading on around 13x trailing earnings but grew net profit by 77% last financial year, an ideal opportunity for private equity to pick up a bargain. That’s probably not be the case anymore, with a bidding war highly likely.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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