Fairfax media reported this morning that private equity interested in vet and pet retailer Greencross Limited (ASX: GXL) has not waned, with a number of private equity firms apparently running the ruler over the company.
In addition to TPG, whose $6.45 per share bid was rejected recently, private equity firms The Carlyle Group and Kohlberg Kravis Roberts & Co. ("KKR") are also looking at Greencross, with advice from several major brokers. ASX-listed EBOS Group Ltd. (ASX: EBO) is reportedly also interested in the company.
Investors may recognise KKR and TPG as the names behind the attempted buyout of Treasury Wine Estates Ltd (ASX: TWE). KKR has also reportedly been interested in picking up both Woolworths Limited (ASX: WOW) itself and Woolies subsidiary Big W.
The latest reports from Fairfax are likely to light a fire under Greencross shares again, with the share price falling back to $6.32 following TPG's failed bid.
So What?
Well, there's no guarantee of a takeover eventuating, of course, and the Greencross board has recommended investors do nothing while it is in discussion with potential buyers. The board hasn't shown any reluctance to knock back offers that undervalue the company, which suggests they have a ballpark 'fair price' in mind as well as faith in Greencross' growth prospects.
Investors will also be hoping that Greencross' upcoming results on the 16th of February live up to expectations, given that falling short of the mark could hurt the share price and make the company more vulnerable to a buyout. However, management's willingness to reject offers suggest they have confidence in the upcoming results at least.
For myself, 'fair' value for Greencross looks to lie somewhere around $7.50, and it would take an offer around that price for me to begin considering a sale. With that said, my estimate could change based on the upcoming report, depending on a variety of factors.
I believe there is a reasonable chance that a slowing Australian economy could hurt sales at the company's pet stores, while inability to make progress towards self-funding its growth (rather than issuing new shares or borrowing) would also hurt my investing thesis (and devalue the company).
I and other investors recently had the opportunity to sell shares around $7.20 apiece at the end of January, but I decided to back my convictions about the company's value. The alternative to accepting a buyout? Continuing to hold a company that is successfully growing both organically and via acquisition. Not a bad deal, in my books.
