BGH Capital’s $314m takeover bid for Webjet Group could face headwinds, as analysts and investors bet the private equity firm could be met with competition from global and local operators keen to buy the online travel agency.
Shares in Webjet on Wednesday were trading at 90c a share, above BGH Capital’s price of 80c a share, which suggests investors are betting that a higher offer is looming.
BGH said the transaction structure for a deal remained under consideration, but it intended to seek a controlling interest in the company and was open to some shareholders retaining an ongoing equity interest, with the potential for ongoing access to liquidity by retaining the company’s public listing, subject to appropriate tax and legal considerations.
A research note from Morgans said the buyout proposal, which was followed by BGH securing 10.76 per cent of the stock in conjunction with Gary Weiss and his interests, was “highly opportunistic”.
Travel sector earnings and multiples were depressed due to political and macroeconomic uncertainty.
Wilsons analysts also said in research that a higher price would be needed to get a deal across the line.
Morgans said that Webjet’s share price up until recently was under further pressure after it was excluded from the ASX 300 and Webjet had previously underinvested in the company.
“It now needs to invest in the business so that earnings can accelerate from the 2027 financial year onwards,” said Morgans analyst Belinda Moore in the research note.
BGH’s offer was also based on a number of key assumptions relating to cash levels, no external debt and no dividends or other distributions including by way of buy-back being announced.
Also, no business acquisitions prior to completion.
“Some, or all of these, were potentially part of Webjet Group’s strategy and or capital management plans.”
Webjet, advised by UBS, announced on Tuesday night that it had received an “indication of interest” from BGH Capital at 80c a share after it had been acquiring stock last week.
BGH, which holds 5.89 per cent of Webjet and is working with Macquarie Capital, has asked Webjet for the opportunity to carry out due diligence.
Morgans said that Webjet required a brand refresh and increased investment in technology, capability and marketing.
Webjet recently laid out its five-year growth plan, with plans to double total transaction value by the 2030 financial year to at least $3.2bn.
“Its strategy is all about capturing the full travel wallet through higher margin ancillary product sales and selling more international versus domestic travel,” Ms Moore said.
“It also includes offering a more tailored business travel offering.”
Based on Morgan’s value estimates, applying a 30 per cent premium for a buyout takes the Webjet price to $1.15 per share, and Morgans took the view that an offer had to be over $1 to be successful, adding it had a strong net cash balance sheet with no debt.
Morgans has not ruled out rival offers from shareholder Helloworld or other global travel operators.
When Expedia purchased Wotif.com in 2014 for $703m, the price equated to 16.3 times its net profit and 8.6 times its earnings before interest, tax, depreciation and amortisation, factoring in debt.
Other sector deals involve Prosus buying Despegar, Latin America’s leading online travel agency, for $US1.7bn, equating to 9 times net profit and 26.6 times EBITDA.
Based on this multiple, it puts Webjet’s price at $1.17 to $1.34 per share.
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