TPG Capital has grabbed 17.8pc of InvoCare, makes takeover offer

Fund managers invested in takeover target InvoCare have applauded the high premium baked into TPG’s offer but won’t be rushing the bid just yet as they await further details of the deal.

Australia’s leading funeral services operator InvoCare could be in play after TPG grabbed a 17.8pc stake in the ASX-listed company.

Fund managers invested in takeover target InvoCare have applauded the high premium baked into private equity firm TPG’s $12.65 per share offer for the funeral services operator but won’t be rushing the bid just yet as they await further details of the deal.

They have called on the InvoCare board and management to engage with TPG to progress talks around an indicative $1.8bn takeover bid and if they believe the offer is too low, and there is more opportunity and value in the stock, to prove it to the wider sharemarket.

“It’s a very good premium and we would have to look at the offer but it is a very good premium to where it last traded and on some serious P/E multiples going forward,” said Contact Asset Management fund manager Tom Millner who looks after the $1.3bn BKI Investment Company which is InvoCare’s ninth biggest shareholder with a 1.14 per cent stake.

“I think InvoCare are still coming out of Covid and the difficulties around that, last year’s results were impacted by weather and it is a very capital intensive business and a lot of moving parts to it.”

On Tuesday the nation’s leading funeral services operator InvoCare was tipped into play after private equity firm TPG bought a 17.8 per cent stake in the struggling funeral business overnight and dispatched a non-binding indicative offer.

The disclosure of the bid put a rocket under the InvoCare share price, gaining $3.13, or 35 per cent, to close at $12.08. The offer has also fired the starters’ pistol in one of the first private equity takeover bids of 2023.

InvoCare is the nation’s leading funeral services and funeral homes operator.

Before the market opened on Tuesday, InvoCare, whose funeral brands include Le Pine, White Lady Funerals and Simplicity Funerals, revealed in a statement to the ASX that TPG had made an unsolicited, preliminary and non-binding indicative takeover bid for the funeral business priced at $12.65 per share.

The takeover bid, valued at around $1.8bn, would be adjusted for any additional dividends or capital returns made by InvoCare prior to completion of the proposed transaction, the company said when disclosing the non-binding TPG offer.

TPG’s indicative proposal is conditional on the InvoCare board not having any engagement with third parties on an alternative change of control transaction during the due diligence period and negotiation of binding transaction and the InvoCare board supporting the indicative takeover proposal.

The indicative proposal is subject to completion of satisfactory due diligence, final approval of TPG’s investment review committee and execution of binding transaction documents on mutually acceptable terms.

The takeover will also be subject to necessary regulatory approvals and that, as part of this, is likely to require Foreign Investment Review Board approval.

“InvoCare shareholders do not need to take any action in relation to TPG’s indicative proposal at this stage,” InvoCare said in its statement.

“There is no certainty that the indicative proposal will result in a transaction.”

InvoCare’s shares have been depressed for years and underperformed the broader market, down 12 per cent in the last 6 months and down 25 per cent in the last year (before the bid was launched), and it looks as though its poor financial performance for the most recent year finally saw its institutional shareholders give up and begin selling down to TPG.

Those underwhelming results for the 2022 calendar year could have been the final nail in the coffin for its long suffering shareholders, and for the larger institutional shareholders especially which likely sold some of their stock to TPG to kickstart a takeover bid.

InvoCare posted a loss of $1.8m for 2022, a swing into a loss from an $80m profit in 2021, as volatile equity markets, rising costs and weaker market share impacted its profitability and triggered an 11 per cent slump in its share price on the day.

The funeral company, which also operates a pet cremations business, pledged to investors to accelerate its strategies under its five-year plan. Investors might not be able to wait that long and it has likely opened the door for TPG.

It’s analyst and investor presentation for the results was titled “strong result & strategic momentum” but the only momentum looks to have been handed to the ambitions and timetable its suitor TPG.

Overnight TPG amassed a 17.8 per cent stake in InvoCare in what has become a beachhead from which to launch a full out takeover for the company on Tuesday when the market opened.

It is believed that TPG had initially built up a stake of around 0.8 per cent in InvoCare over the last year and bought up its 17 per cent stake through UBS at a price of $12.65 per share. InvoCare shares had last traded at $8.95. If a full takeover is launched it would value InvoCare as much as $1.86bn.

Argo Investments chief executive Jason Beddow, whose $6bn investment fund is InvoCare’s sixth biggest shareholder with a stake of just under 2 per cent, said it looked like a strong offer from TPG.

“I think it is a reasonable offer, the company has had its challenges, Covid and the rest of it, and it got particularly beaten up when its results came out so that price (from TPG) may look attractive to Monday’s close but it was trading in the mid $11 mark a few weeks ago,

“But it is enough a price for management and the board of InvoCare to at least engage with TPG and at least prove to the market why it’s not so good a price or sufficient.”

InvoCare listed on the Australian Securities Exchange in 2003 at an issue price under the IPO of $1.85.