Australian funeral home operator InvoCare [ASX:IVC] is set to be acquired by private equity firm TPG Capital in a deal worth $1.83 billion
The deal has been subject to some interesting back and forth between the two companies as the final deal came down to the wire.
InvoCare has been in a trading halt since Monday morning after over the weekend, TPG stated that it was prepared to walk from the deal unless the price was lowered.
Since the deed of implementation has been signed, and Invocare has come out of the pause, it has seen its share price rise by 5.86%, trading at $12.47 per share.
This marks a somewhat steady year for InvoCare, with shares up by 15.77% in the past 12 months. Its only major share price movements have come as the battle for terms of the agreement has spilled out into trader’s purview.
Source: TradingView
Close the casket on this deal
TPG Captial’s pursuit of Invocare has finally come to a close after a deal was struck between the two companies, who have signed a scheme implementation deed.
The proposed buyout offer of $12.70 per share for the Sydney-based company represents a 42% premium to InvoCare’s closing price on March 6, before the initial approach.
The deal penned offers a slightly higher valuation than the original offer in March of $12.65 per share that InvoCare rejected.
In May, TPG returned with a sweeter deal, offering $13 per share conditional on satisfactory due diligence.
InvoCare then gave TPG two one-week exclusivity extensions to the negotiation period while giving investors no details for reasons for the delay.
These became clearer signals to investors that things were not well behind the curtains, and discussions heated while the share price slid.
After further back and forth, the two parties have finally passed the point of brinkmanship and agreed to the final $12.70 per share, plus a 60-cent fully-franked dividend.
InvoCare’s board today supported the deal, saying:
‘“The board is unanimous in its view that this transaction is in the best interests of InvoCare shareholders,” InvoCare Chairman Bart Vogel said in the statement. “The board notes that the cash consideration delivers certainty of value to InvoCare shareholders and unanimously recommends that shareholders vote in favour.”’
The deal is still subject to shareholder and regulatory approval but is expected to close later this year without further drama.
Outlook for InvoCare
The deal will be a big relief for InvoCare leadership and shareholders as early signals pointed to the beginning of trouble for the funeral company.
The company expects to report earnings before interest, tax, depreciation, and amortisation (EBITDA) for the first half in the range of $61–63 million, compared with $68.5 million a year ago.
Invocare flagged a challenging macro environment, citing that softer market volumes and inflationary pressures have impacted its margins.
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While the margin profitability may be an issue in the shorter term, the company’s underlying health and long-term prospects are solid.
Managing Director at Smoling Stockbroking, Brad Smoling stated:
‘Invocare is an excellent opportunity as an acquisition for TPG.
‘The aging demographics in Australia and the surprising increase in mortality in recent years is very positive for Invocare.’
Source: ABS Data: Wilson,Temple (2022)
Overall, the deal is a positive development for InvoCare. It gives the company some needed capital to reinvest and expand its business, while TPG is able to extend its presence in the funeral services industry.
It also provides shareholders with a fair price and gives them the opportunity to have a clean exit at a time when the company is facing come challenges.
The fully-franked 60 cents dividend is the nice cherry on top.
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