Cashed-up privateers put Reliance on their shopping lists

Many of the big private equity firms are cashed up and see plenty of opportunities.

Private equity firms continue to scan the local market for discount buying opportunities, and one of the sectors proving to be a happy hunting ground is understood to be the listed industrial space.

Industrials considered to be defensive are said to be at the top of the shopping list for some global private equity groups like Kohlberg Kravis Roberts, Blackstone, Apollo Global Management and The Carlyle Group, while local funds like Pacific Equity Partners and BGH Capital are also believed to be seeking out the same sort of opportunities.

One of the companies that some believe could be under close watch is plumbing supplies company Reliance Worldwide, which listed in 2016 with a $1.3bn market value. It has a $2.15bn value with its share price at $2.87, about half the share price of two years ago.

Reliance, like most companies, has suffered from COVID-19-related disruptions in its global markets, given business conditions are subdued and construction is expected to slow in the US with growing unemployment, although it will gain some upside from the DIY market.

The coronavirus has compounded earlier challenges.

In February, Reliance downgraded its full-year earnings guidance due to weaker demand in its UK and Asia Pacific markets and a surprise slump in North American revenue.

It indicated net profit was set to be in the range of $140m to $150m compared to the $150m to $165m expected earlier. Its shares fell 26 per cent on the news to about $3.42.

However, long term, the prospects for Reliance remain strong, what with it being the world’s largest manufacturer of some plumbing fittings and water control valves.

When it listed, Reliance was bought up by investors, impressed by its annual profit growth forecasts of 20 per cent and revenue growth of 13 per cent.

At that time, JPMorgan and Macquarie Capital were working on the transaction.

Analysts at Macquarie Capital have an “outperform” rating on the stock and said in a recent research note that they believed it looked attractive.

Many of the big private equity firms are cashed up and see plenty of opportunities, although most are hesitant to rush into deals given the uncertainty over the outlook and valuations with the JobSeeker and JobKeeper benefits due to be phased out in September.

BGH Capital’s attempt to acquire Village Roadshow is one of few M&A deals currently in play, although the eventual price remains conditional to the state of the market.

The private equity firm on Tuesday extended its exclusive due diligence period by two weeks.

Interestingly, Australian-Super owns a 10.90 per cent stake in Reliance, so it could make the company well suited to BGH Capital’s playbook.

BGH made bids for private hospital operator Healthscope and education provider Navitas in conjunction with AustralianSuper in the past two years.

With both targets, AustralianSuper was also a major shareholder.