Global pension funds are believed to be lining up to partner with bidders for Link Administration’s $1bn-plus stake in Property Exchange Australia, with the company now saying it is prioritising a trade sale over a demerger.
Pacific Equity Partners and the Carlyle Group continue to carry out due diligence on Link for an acquisition that could be worth close to $3.80 a share, or $2bn, and equating to $2.9bn if including the Pexa interest.
Some suspect a firm bid at that price will emerge around March.
There is divided opinion in the market about the prospects for both Link and Pexa when it comes to a sale, with some saying the current suitors will almost certainly abandon plans to buy the business after the other interested acquirer, SS&C Technology, walked away from a deal last month to buy the company for a market value of about $3bn.
This is due to concerns about disruption from the ASX’s shift to blockchain technology.
They also believe that parties will be unlikely to pay up for Link’s 44 per cent interest in Pexa, with Macquarie Infrastructure and Real Assets the only suitor for which a deal makes sense.
MIRA owns several of the land titles offices in Australia, including those in Western Australia and South Australia, and already has rights to the data, which it could establish a way to monetise.
They argue a price equating to about eight times earnings is more justified for other suitors that could not explore that lucrative option — not 10 or 15.
Already the dominant market player, there are questions about Pexa’s earnings growth, with global expansion a high-risk move. Cutting costs is the other way to drive earnings higher.
For the year to June, the Pexa stake contributed $23.6m of profit to Link.
Pexa could also be forced by regulators to share its electronic settlements infrastructure to allow for competition, say analysts.
But others believe there is overwhelming interest globally for such assets at high prices from Australian, British and Canadian pension funds at a time when debt is not in short supply.
MIRA and private equity funds such as Affinity Equity Partners are said to be showing interest.
The company said on Monday there was “good indicative interest received” in Pexa and that it would prioritise the trade sale process over the demerger.
Some believed that finding banks in Australia prepared to fund debt for Pexa earlier to pay shareholders a dividend had proved challenging.
There is a theory that Link is pursuing a trade sale because Pexa’s other shareholder, Morgan Stanley Infrastructure, is against a demerger. If it becomes a public company, they will need to adjust the value of the asset in its accounts based on market conditions and that it is a closed-end fund that would not want to make a divestment until the next two years.
Sources say Morgan Stanley Infrastructure has some say about the demerger route based on the ownership contract.
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