Tourism Holdings has become a takeover target. Photo / Supplied
BGH Capital’s play for Tourism Holdings has prompted talk about who else might be in the firing line.
This week, Tourism Holdings (THL) received an unsolicited, non-binding offer from a consortium led by BGH Capital and the Trouchet family - previous owners of Australia’s Apollo Tourism & Leisure - to acquire all shares at $2.30 per share, subject to conditions.
BGH has already acquired a 19.99% stake through agreements with the Trouchet shareholders and purchases from ACC, ANZ, and Wilson Asset Management.
THL, one of the world’s biggest commercial recreational vehicle operators, is just one of a number of names considered by brokers to be in the merger and acquisition (M&A) frame as many struggle their way through weakness in the economic cycle.
“Looking across the New Zealand sharemarket there are a number of companies that may be attractive M&A targets given depressed valuations,” Harbour Asset Management senior portfolio manager Shane Solly said.
BGH has a reputation for playing the long game.
The private equity company, with US-based Sixth Street, had to go the distance in their bid for dual-listed Pushpay before upping the ante to $1.42 a share from $1.34 to finally take it over in 2023.
The THL offer indicates that the consortium is also open to considering a transaction structure which results in a controlling interest but does not result in 100% ownership of the company.
Broker Forsyth Barr do not expect THL to be a pushover.
“While THL has performed poorly in recent years, we don’t expect THL’s board to wave the white flag and support the offer just yet, though we recognise BGH Capital’s track record of lifting initial indicative offers for listed companies,” Forsyth Barr said in a note.
“Consequently, the current offer is likely to be rejected by the board, but we can’t rule out a more attractive, higher bid that the board ultimately supports.
“In the absence of a deal, we remain attracted to THL’s earnings potential over the medium to long term, which we don’t believe is sufficiently recognised in its current share price or by the indicative offer,” the broker said.
“We retain an outperform rating and $2.70 target price.”
Harbour Asset’s Solly said the slower economy was prompting interest in some out-of-favour stocks.
Solly said parts of the economy have yet to feel the full impact of interest rate cuts, which for many will not be felt in mortgage rates until later in the year.
On the “dance card” of M&A possibles is SkyCity, Sky TV, The Warehouse, KMD Brands, Sanford, Spark and Ryman Healthcare.
Last week, Fletcher Building (FBU) said it had received inquiries from parties interested in its businesses, including its construction division.
More will be revealed when Fletcher holds its investor day on Tuesday.
“The key thing here is that we have an economy that is bumping along the bottom,” Solly said.
“There is an opportunity to sweep in and take advantage of a depressed economy.”
But Solly said picking the turning point would be tricky.
Agriculture is going well but, on the other side, consumers have been wary.
“We have parts of the economy that are still looping down - if anything - and we are yet to see the bottom in some sectors.
“Consumers are still under pressure.
“They are yet to see that mortgage rate relief come through and they are worried about employment.
“The economy is turning, but it’s just that parts of it are slower, such as residential construction.”
The 2025 financial year is set to deliver Meridian Energy’s (MEL) worst operating (earnings before interest, tax, depreciation, amortisation and financial instruments) result in more than 10 years, with extreme hydro conditions and high-cost replacement generation the main drivers, Forsyth Barr says.
“While the May 2025 operating performance is showing signs of improvement, it is not enough to prevent a further downgrade to FY25 earnings.
“On the positive side, opex costs appear to have flat-lined; retail continues to perform well; and the incorporation of the Flick Electric hedge book provides a boost to FY26-FY28 earnings.”
The broker said Meridian was well placed for a materially better FY26.
Forsyth Barr retained its “neutral” rating on the stock.
“While its operating outlook is improving, MEL trades at a premium to its peers and the sector faces some uncertainty from regulatory and political reviews,” it said.
Financial year 2025 is a year MEL would want to put behind it, and the outlook is looking better.
“NZAS demand response payments are reducing, lower opex and continued strong retail growth all help to lift later-year forecasts,” Forsyth Barr said.
Investment research firm Morningstar says Virgin Australia’s upcoming A$2.3 billion ($2.5b) offer is priced too high.
“Current industry tailwinds, which we think are transitory, would need to persist longer term to justify the A$2.90 offer price,” Morningstar analyst Angus Hewitt said in a research note.
Hewitt said Bain was selling down its Virgin stake at an opportune time.
“Industry conditions are favourable, pricing power is elevated, and Virgin has re-emerged from bankruptcy a better business,” he said.
He noted that the share prices of airlines, including Qantas, were trading at a premium, indicating the market expects the current environment to persist.
“We disagree.
“While Australian airlines are over-earning currently, we expect this to attract competition in the medium term.
“We do not think Australia will only have two airlines forever.”
Virgin, like other airlines, lacks pricing power, he said.
“Burdened by high fixed costs, low barriers to entry, and low switching costs, airlines globally struggle to durably earn economic profits.
“Virgin is no exception. These conditions plagued the airline industry before the pandemic, and we think they will again as industry tailwinds abate.
“We think conditions are cyclically, rather than structurally, favourable.”
Morningstar’s fair value estimate for Virgin Australia is A$2.60 per share.
Hewitt said the A$2.90 offer price was “slightly expensive”.
“To justify the offer price, we need to assume Virgin can increase market share at the expense of Qantas without sacrificing pricing.
“Otherwise, the airline industry would need to maintain elevated load factors and pricing over the next decade, conditions we believe are temporary.
“We think Virgin, like all airlines, lacks an economic moat.
“The airline industry is not conducive to value creation, with competitive intensity, input cost volatility, high capital costs, and industry cyclicality dominating the investment outlook.”
Virgin Australia is due to list on Tuesday.
Jamie Gray is an Auckland-based journalist, covering the financial market, the primary sector and energy. He joined the Herald in 2011.
Fletcher Building, Spark and Ryman are potentially all on the radar.