The Sydney Airport Holdings Pty Ltd (ASX: SYD) share price has been relatively uneventful for the past month. This stagnation in the airport operator's shares follows the rejection of its $8.25 per share offer from a consortium of private equity investors.
At market close on Friday, shares in ASX-listed Sydney Airport were fetching $7.64 apiece. This represents a 7.4% discount on the rejected bid.
Management rejected the offer on the basis it undervalued the company. Which may not be too far from the truth if the feeding frenzy for infrastructure assets continues. One respected Australian fund manager shared their view on the current M&A environment.
Milestone moments
It has been the story of recent months… companies, particularly private equity firms, have been flushed with cash after tightening the belt in 2020. As a result, the piggy bank has become weighty, and firms are eager to take a hammer to it.
At the same time, investors are on the hunt for returns. In combination, the market is bearing down on one of the hottest M&A periods in recent history. The proposed acquisition of Afterpay Ltd (ASX: APT) by US-listed payments company Square is a fair indication the action is yet to be on the decline.
Portfolio Manager and Head of Research at Airlie Funds Emma Fisher recently discussed the M&A phenomenon.
What's really interesting about the flavour of M&A that we are saying right now is the fact if you look at some of the big deals… the Sydney Airport takeover bid recently, Spark Infrastructure, Telstra selling their infrastructure towers, and even the IPO of PEXA… the common thematic there is these are all long-duration infrastructure style investments that are essentially being bid for in mid-20s EBITDA [Earnings before interest, tax, depreciation, and amortisation] multiples.
Fisher added to this commentary,
And this is all happening at a time when the debate in the public markets is really around inflation. The public market's narrative is I'll stay away from long-duration assets… over the course of the year bond yields have actually been rising.
So there's clearly this bifurcation between public markets that are very worried about inflation and the implication for long-duration assets, and private players who are sitting on mounds of cash, and are very happy to deploy that – often at very high multiples to access unique long-duration assets.
What's next for Sydney Airport on the ASX?
While management is adamant the takeover bid undervalued the company's share price, future offers can't be ruled out. In the meantime, investors can expect to see the Sydney Airport ASX release of its 2021 half-year results on Friday 20 August (ASX Reporting Season Calendar).
Finally, based on Friday's closing Sydney Airport share price, the company commands a market capitalisation of $20.7 billion.
