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Private equity are sniffing around Greencross Limited (ASX:GXL)

Long-suffering Greencross Limited (ASX: GXL) shareholders may soon be put out of their misery with a potential takeover offer by private equity.

According to the AFR’s Street Talk, Greencross is in the sights of a private equity bid and it is believed that there is hope of doing a deal.

AFR sources said that the two most likely candidates to launch a takeover are (private equity firms) TPG and BGH Capital.

Greencross’s profit has been disappointing considering its network of vets and retail stores gets bigger every year, and revenue continues to grow too. Yet margins are slowly decreasing and profit is worsening.

There is hope that FY19 will be a bumper year because the new CEO wrote off a number of items and made provisions, which dented the FY18 profit. Rising revenue should also help increase the bottom line.

TPG and The Carlyle Group had previously offered a $6.45 per share bid for Greencross. Who knows if another bid would be higher or lower than that? If it were to be the same bid then suggests a 60-odd percent increase. I’d be surprised if the offer is that high considering where the share price is at the moment.

Apparently Greencross has set up a data room in-case an offer does come in, so management must think there is a decent chance of a takeover attempt.

Since initial publication of this article, Greencross confirmed that it is engaging with “a number of parties” regarding proposals.

Foolish takeaway

Although I think Greencross could have a bumper year in FY19, the longer-term outlook is looking more difficult with Amazon now selling pet supplies and Petbarn offering discounts to win customers. It’s currently trading at 13x FY19’s estimated earnings.

I’ll be glad to sell if a takeover offer does come through and put the money to better use elsewhere.

If I do sell then I’d put the money towards one of these top shares which has good ageing demographic tailwinds.

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Motley Fool contributor Tristan Harrison owns shares of Greencross Limited. The Motley Fool Australia owns shares of and has recommended Greencross Limited. 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 Scott Phillips.

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