Continuous Disclosure: Could Metlifecare deal be start of something bigger? Private equity sniffing around NZ

Could the Metlifecare acquisition just be the start of a retirement sector roll-up? Photo / Natalie Slade

Metlifecare's on-then-off-then-on-again takeover by a Swedish predator EQT has raised talk in the sector of further M&A activity involving the same business.

Once Metlife is hoovered up at the newly-lowered $6 a share, the Swedes could go even further, perhaps eyeing NZX-listed Oceania Healthcare and the unlisted Bupa NZ's care home assets. Nothing has been said in public about this so far but if that went ahead, it could be a $2b-plus deal.

The Commerce Commission would be unlikely to look askance at the Swedes, the speculation has it, due to assets being widely held and a deep and evolving market with many operators housing the 43,000 kiwis in retirement residences.

But due diligence might be tricky due to Covid-19.

The Swedes have around $50b under management and the only pushback could be if the limited partners in the funds say no to the general partner.

Bupa is seen to be ripe for the picking with a good spread nationally and many large outdated properties giving opportunities to intensify accommodation.

The Swedes could even partner with another investor, say Morgan Stanley, whose infrastructure fund is thought to have been interested in Metlife before this current takeover offer.

The industry is seen to have been focused on development, not mergers and acquisitions. Look out. If the talk results in any action, that could all change soon.

The right price?

The $6 per share offer will be attractive for some but other shareholders want more, given that it is short of the underlying value of the assets.

Mark Brown, chief investment officer at Devon Funds Management, said there were clearly a lot of short term hedge fund investors looking to exit their positions.

"Many will be facing losses on this trade and will most likely be trying to minimise them in the shortest time possible. These investors have been clearly pushing Metlifecare management hard and will be very keen to accept a deal."

Brown said EQT's current non-binding offer brings them back to the table within the range set by the valuers.

"I think a deal is very likely, albeit unfortunate for NZ capital markets."

But Craig Tyson, head of Australasian property securities ANZ Investments, which has shares in Metlifecare, said while $6 was the right starting number it was a little light.

"The range from the independent report is $5.80-$6.90, so we would be expecting a price north of the mid-point ($$6.35).

Tyson said EQT had emphasised that it was an investor with a long-term horizon and therefore short-term house price headwinds should have little impact on the valuation of the business.

"Clearly New Zealand is a desirable place to invest for a bunch of reasons including our handling of the Covid crisis. Metlifecare is a good business with great assets and there would be few better places than NZ to invest right so we have confidence in the board to negotiate the right outcome for investors."

Private equity circling

EQT isn't the only private equity player interested in New Zealand companies at the moment.

John Fisk, national leader of restructuring for PwC told journalists this week that it was seeing a high lever of interest from the PE sector.

"PEs are active at moment. We are dealing with PEs that are looking at businesses I'm surprised they would be interested in."

Fisk said the interest included foreign PE investors from Australia.

"The Australians are interested in what we have got here."

Last month the Government introduced temporary overseas investor changes so that the Overseas Investment Office must be notified of any investment in more than 25 per cent of a business or more than a quarter of a business' assets, or increasing an existing shareholding.

Previously the OIO screened transactions over $100m or involving sensitive land sales. The new rules will be reviewed every 90 days.

Investors should find out within 10 working days if their transaction can go ahead while some may take longer to work through.

John Fisk, national leader of restructuring for PwC. Photo / Supplied

Fisk said the restrictions were something PE investors were aware of.

"They can still take an interest in the company under 25 per cent."

Fisk said investors were not focused on any particular sectors.

"It's anywhere that is a better return than what they can get with money sitting in their bank."

"The part that I find interesting is that you have got very low interest rates, people that have got money to invest and yet we are walking into storm of potential insolvencies."

That could mean some PE investors pick up a good deal while others may get stung as they have in the past.

Bubble burst

Victoria's surge in Covid-19 cases and subsequent lockdown has pushed the timeframe for a transtasman bubble even further away and it has weighed on aviation stocks.

Harbour Asset Management portfolio manager Shane Solly says after flying high through
lockdown the Air New Zealand stock price is down more than 20 per cent over the last four weeks.

"Globally airline stocks are weak, but the extended New Zealand border closure is constraining potential international revenue growth."

That wasn't helped this week after the Government asked the airline to stop taking bookings for the next three weeks.

Auckland Airport shares have dived again as signs of a transtasman bubble keep disappearing into the distance. Photo / file

Air NZ chief executive Greg Foran has said that will push out the revenue rather than it missing out on it completely.

But it will be another blow for the airline which is trying to find its feet again in the Covid world.

Solly said Auckland Airport shares were also down 12 per cent over the last month as the trans Tasman bubble has been deflated for now.

"Both companies have June fiscal years so investors will be looking for a baseline to move forward from."

That could be tough when there is still so much uncertainty for the sector.