The deadline is fast approaching for Link Administration Holdings Ltd (ASX: LNK) to accept or reject a buyout proposal from a consortium of private equity (PE) firms.
Heavyweight PE firms, Pacific Equity Partners (PEP) and Carlyle Group, have given Link until 5pm today, Wednesday 28 October, to access its books and start the due diligence process. The proposed buyout offer currently stands at $5.40 per share.
What does Link Administration do?
Link Administration is a technology provider of outsourced administration services for superannuation fund administration, mortgages, corporate markets and related services.
Its most valuable asset is PEXA, an electronic conveyancing company of which it owns 44%. PEXA handles almost all transfers and discharging of mortgages across all Australian states. Commonwealth Bank of Australia (ASX: CBA) for example, settles 80% of its mortgages through PEXA.
What is the background behind the buyout?
PEP is in fact the same company that took Link Administration to float in 2015 after working with it for 10 years. The initial listing price at the time was $6.37. A few years later, PEP sold its shares in Link for $8.38 each and made a substantial profit in the process.
That was in 2018 and, since then, the Link Administration share price has been in a downward spiral with the company now trading at $4.78 (at the time of writing). The company was in the middle of restructuring to cut costs when the the buyout offer came from PEP and Carlyle.
The initial buyout offer came at $5.20 which was dismissed by Link Administration’s management. Link’s major institutional shareholders, however, had differing opinions, with Perpetual Limited (ASX: PPT), its bigger shareholder, agreeing to accept the offer at that price.
Link’s second largest shareholder, Yarra Capital Management, disagreed and argued that the $5.20 price tag was too low given that the PEXA business has enormous upside potential.
The latest proposal
PEP and Carlyle eventually came up with a sweeter deal at $5.40. This new proposal also includes an option to buy Link Administration at $3.80 excluding the PEXA asset, but instead with the ability to take an indirect interest in it. It is clear that the valuation of PEXA has really been at the heart of this takeover battle.
Link Administration CEO, Michael Carapiet, told shareholders at Link’s virtual annual meeting yesterday that the proposal ”remains non-binding, indicative and continues to have a number of conditions attached”. He instructed the shareholders “to do nothing”.
At this stage, however, it looks like there is enough support from shareholders to go ahead with the buyout proposal. We will know for sure today.
More reading
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dsunarto has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Link Administration Holdings Ltd. The Motley Fool Australia has recommended Link Administration Holdings Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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