PEXA to list as $3.3 billion company in year’s largest float

Online settlements network Property Exchange Australia will become the year’s largest float, with the $3.3bn company to hit the ASX next month.

PEXA already dominates property settlements in Victoria and NSW and other states are following, with the company also forging into new markets including the United Kingdom. Picture: iStock

Online settlements network Property Exchange Australia will become the year’s largest float with the $3.3 billion company to hit the Australian Securities Exchange next month after a dramatic weekend in which big institutions agreed to back the listing.

The company will list as a high-octane technology stock after the year long battle for its future came to a head on Thursday when private equity giant Kohlberg Kravis Roberts and Nine-controlled Domain Holdings Group lobbed an aggressive $3.1 billion bid for PEXA that was set to expire on Sunday at 5pm.

This spurred the group, led by chief executive Glenn King, into a dramatic bookbuild last Friday, in the largest ever such play in the Australian market, with institutions pouring in as PEXA was priced at a lofty 30 times forward earnings on the basis of its dominant market position and growth ambitions.

This nudged out the bid by the private equity and real estate group, and the rapidly growing electronic settlements platform will come on to the market with its business bolstered by the residential property boom, with higher volumes following a price surge.

The company already dominates property settlements in Victoria and NSW and other states are following, with PEXA also forging into new markets including the United Kingdom, as well as seeking to monetise its unique data, a crucial advantage in the property and finance fields.

The float also signals a reopening of the share market after a number of high-profile pullbacks recently, including by the Australian Venue Company and Best & Less, as well as the poor performance of Pepper Money.

It is also a coup for PEXA’s major shareholder, Link Administration, which lifted by 5 per cent on Friday in the wake of the private equity bid, and the surprise float is a turnaround from the position had KKR and Domain’s cash offer prevailed, which would have seen most of PEXA’s shareholders exit.

That would have seen the pair take out major shareholders, Link and Morgan Stanley Infrastructure Partners, but could have seen the Commonwealth Bank remain invested.

While Morgan Stanley is now out both Link, which held a 42.6 per cent stake, and the Commonwealth Bank, at 15.3 per cent, will retain the bulk of their holdings in PEXA, and sit alongside the new shareholders as they seek to drive the company’s growth.

Link will have 42.1 per cent and the bank will have 17.4 per cent.

Link had been under pressure since last October when private equity firms Carlyle Group and Pacific Equity Partners made a buyout proposal, that was sweetened to $5.40 per share from $5.20.

That pair won due diligence and won conditional support from investors including Bennelong, Solaris Investment Management and Fisher Funds, and largest shareholder, Perpetual Investments, which held 9.65 per cent of the company.

The Australian equities house played a key role in shifting the company into play, seeking to address Link’s share price under-performance.

But in late April the consortium pulled its proposal and Link flagged it had received interest ahead of the proposal’s implied enterprise value of about $1.95 billion for PEXA.

Link declined to comment but has effectively crystallised about $1.4 billion of additional value in PEXA with the float coming in ahead of both private equity bids.

PEXA chief executive Glenn King.

Yarra Capital Management head of Australian equities Dion Hershan said an IPO of PEXA was the preferred outcome.

“It demonstrates the value of the business and provides Link shareholders the long-term opportunity to participate in the growth both in Australia and offshore,” he said.

Mr Hershan cited PEXA’s many compelling attributes as a digital platform which is “highly scalable”, its unassailable market share leadership, infrastructure-like characteristics and significant growth options offshore.

He praised Link’s decision to pursue the float rather than taking the private equity cash, saying the board “should be commended for patiently working through options to arrive at a strong outcome for all shareholders”.

“Importantly, Link’s board and management have helped to prove up the value of PEXA which was a hidden gem in their portfolio of businesses,” he said.

Mr Hershan said backing an IPO path was consistent with their approach of taking a long-term view “rather than the sugar hit of an immediate sale with adverse tax consequences” and he is bullish about the spin-off’s prospects.

“We would expect PEXA to perform well as a public company, Link shareholders will now have direct leverage to it,” he said.

But major Link investors remain keen for the company to actually realise the value of its interest in PEXA and want this to be reflected in the share price, which was at $5.45 last Friday, rather than keeping an exposure to the growth stock during a period of market volatility.

KKR and Domain’s bid was priced at $3 billion and $126 million worth of cash on the PEXA balance sheet at the end of March.

Insiders said their proposal lobbed ahead of the timetable for bids but PEXA’s underwriters had responded by winning a higher price for the company on the listed market in the massive bookbuild that was undertaken on Friday.

The four IPO joint lead managers UBS, Macquarie Capital, Morgan Stanley and Barrenjoey Capital finalised agreements with PEXA over the weekend after 48 hours of high stakes drama prompted by the KKR/Domain move.

The price at which the funds would be raised shows a lofty forward earnings multiple of 30.6 times forecast earnings next financial year.

Late Friday the owner of PEXA, Torrens Group Holdings Pty and its shareholders, offered about 68.7 million shares at $17.13 each.

The company would issue $216 million worth of fresh shares, while the existing shareholders would offload $961 million worth of shares, with the bulk of this made up of Morgan Stanley Infrastructure Partners exiting.

The tie up between KKR and Domain, whose interest was revealed by The Australian’s DataRoom column, will closely watch the float’s progress, after their keenness for the asset was revealed by the sales process.

Domain had confirmed on Friday it would partner with KKR and would end up with a 10 per cent stake in PEXA if that bid went ahead. Rival trade bidder Canadian firm Dye & Durham also missed out.

The Australian’s DataRoom column last week reported that investment banks testing market interest for an initial public offering of PEXA were forging ahead for a potential listing next month despite recent deals being shelved due to market volatility.

PEXA has rapidly expanded its business and its market share at the end of March had hit 98 per cent in Victoria and 96 per cent in NSW. This was followed by South Australia (95 per cent), Western Australia (80 per cent) and Queensland (60 per cent).

Originally published as PEXA to list as $3.3 billion company in year’s largest float