IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Event-Driven

<p><a href="https://www.smartkarma.com/entities/link-administration-holdings-ltd" target="_blank" data-smartkarma-citation="entities:970:1" rel="noopener">Link Administration Holdings (LNK AU)</a> announced that it received a non-binding indicative proposal from <a href="https://www.smartkarma.com/entities/carlyle-group-inc" target="_blank" data-smartkarma-citation="entities:33402:1" rel="noopener">Carlyle Group Inc (CG US)</a>. Carlyle will offer A$3.00 cash per share plus a pro-rata distribution of Link’s 42.8% shareholding in <a href="https://www.smartkarma.com/entities/pexa-group-ltd" target="_blank" data-smartkarma-citation="entities:34716:1" rel="noopener">PEXA Group (PXA AU)</a> (worth A$2.38 per Link share at PEXA’s share price of A$16.23 on 4 November). The total consideration of A$5.38 per share is a 24.2% premium to the unaffected price of A$4.33 (on 4 November). Carlyle’s core Link (excluding PEXA stake) value of A$3.00 per share is a 53.8% premium to the implied core Link share price of A$1.95 per share (on 4 November). </p><p>Link is no stranger to bids and received several bids in the recent past, including from Carlyle. Carlyle and Pacific Equity Partners made an indicative A$5.20 per share offer on 12 October 2020, which was later raised to A$5.40 on 26 October but withdrawn on 28 April 2021. <a href="https://www.smartkarma.com/entities/ss-c-technologies-holdings" target="_blank" data-smartkarma-citation="entities:3464:1" rel="noopener">SS&amp;C Technologies (SSNC US)</a> lobbed an A$5.65 per share offer on 7 December 2020 but withdrew the offer on 3 January 2021. Also, <a href="https://www.smartkarma.com/entities/kkr-co-inc" target="_blank" data-smartkarma-citation="entities:27333:1" rel="noopener">KKR &amp; Co Inc (KKR US)</a> and <a href="https://www.smartkarma.com/entities/domain-holdings-australia-ltd" target="_blank" data-smartkarma-citation="entities:26033:1" rel="noopener">Domain Holdings Australia (DHG AU)</a> proposed to acquire PEXA for A$3.1 billion on 27 May 2021 which was declined in favour of a separate listing for PEXA.  </p><p>Link’s Board has argued that the previous bids did not represent compelling value and sought to generate shareholder returns through the PEXA IPO and outlining ambitious FY26 targets in a November investor day. However, PEXA’s market cap of A$2.8 billion at last close is below KKR’s bid of A$3.1 billion. The lukewarm share price response (shares down -2% on the following day) to the investor day points to low confidence that the targets can be reached. </p><p>Carlyle’s latest offer is subject to due diligence, execution of transaction documents and securing debt financing. Due diligence should be short due to Carlyle’s access to the due diligence materials through its previous bid.  </p><div class="content-highlight"><p>The Board’s previous track record of knocking back bids has resulted in Link’s last close price of A$4.70 trading at a wide 14.5% gross spread to the indicative offer of A$5.38 per share. However, due to the Board’s failure to generate shareholder value and there no longer being a debate on PEXA valuation (as PEXA is now listed), the Board will face pressure to engage with Carlyle. We also think that Carlyle has room to sweeten its bid as its latest bid values core Link at A$3.00 per share, which is 21% below its previous offer which valued core Link at A$3.80 per share. </p></div>

Link Administration Holdings (LNK AU) announced that it received a non-binding indicative proposal from Carlyle Group Inc (CG US). Carlyle will offer A$3.00 cash per share plus a pro-rata distribution of Link’s 42.8% shareholding in PEXA Group (PXA AU) (worth A$2.38 per Link share at PEXA’s share price of A$16.23 on 4 November). The total consideration of A$5.38 per share is a 24.2% premium to the unaffected price of A$4.33 (on 4 November). Carlyle’s core Link (excluding PEXA stake) value of A$3.00 per share is a 53.8% premium to the implied core Link share price of A$1.95 per share (on 4 November). Link is no stranger to bids and received several bids in the recent past, including from Carlyle. Carlyle and Pacific Equity Partners made an indicative A$5.20 per share offer on 12 October 2020, which was later raised to A$5.40 on 26 October but withdrawn on 28 April 2021. SS&amp;C Technologies (SSNC US) lobbed an A$5.65 per share offer on 7 December 2020 but withdrew the offer on 3 January 2021. Also, KKR &amp; Co Inc (KKR US) and Domain Holdings Australia (DHG AU) proposed to acquire PEXA for A$3.1 billion on 27 May 2021 which was declined in favour of a separate listing for PEXA.  Link’s Board has argued that the previous bids did not represent compelling value and sought to generate shareholder returns through the PEXA IPO and outlining ambitious FY26 targets in a November investor day. However, PEXA’s market cap of A$2.8 billion at last close is below KKR’s bid of A$3.1 billion. The lukewarm share price response (shares down -2% on the following day) to the investor day points to low confidence that the targets can be reached. Carlyle’s latest offer is subject to due diligence, execution of transaction documents and securing debt financing. Due diligence should be short due to Carlyle’s access to the due diligence materials through its previous bid.  The Board’s previous track record of knocking back bids has resulted in Link’s last close price of A$4.70 trading at a wide 14.5% gross spread to the indicative offer of A$5.38 per share. However, due to the Board’s failure to generate shareholder value and there no longer being a debate on PEXA valuation (as PEXA is now listed), the Board will face pressure to engage with Carlyle. We also think that Carlyle has room to sweeten its bid as its latest bid values core Link at A$3.00 per share, which is 21% below its previous offer which valued core Link at A$3.80 per share. 

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

Financial Select Sector SPDR F / Technical Analysis

<p>We continue to see a steady flow of risk-on signals that have us moving toward an outright bullish outlook for the broad US equity market. Below we discuss several bullish developments that leads us to believe we are close to exiting the "mixed market environment" that we have referenced since late March.</p><p>Charts highlighted: XLF, KBE, Copper, US Dollar, IWD, XLY, Bitcoin, S&amp;P 500, APO, LPLA, ARCC, JHG, KKR, ALLY, CACC, OMF, CIT, WD, GATX, LC, CODI, WRLD, ATLC, BCPC, TROX, ASPN, ASIX, LXU, HWKN, MOS, CF, ICL, SQM, UAN, IPI</p>

We continue to see a steady flow of risk-on signals that have us moving toward an outright bullish outlook for the broad US equity market. Below we discuss several bullish developments that leads us to believe we are close to exiting the "mixed market environment" that we have referenced since late March.Charts highlighted: XLF, KBE, Copper, US Dollar, IWD, XLY, Bitcoin, S&amp;P 500, APO, LPLA, ARCC, JHG, KKR, ALLY, CACC, OMF, CIT, WD, GATX, LC, CODI, WRLD, ATLC, BCPC, TROX, ASPN, ASIX, LXU, HWKN, MOS, CF, ICL, SQM, UAN, IPI

Upgrading Financials To Overweight; Downgrading Communications To Market Weight

Equity Capital Markets

<div><p><a href="https://www.smartkarma.com/entities/phc-holdings-corp" target="_blank" data-smartkarma-citation="entities:34198:1" rel="noopener">PHC Holdings (6523 JP)</a> is a leading diversified diagnostic, life sciences and medical device company serving global markets. PHC shareholders include <a href="https://www.smartkarma.com/entities/kkr-co-inc" target="_blank" data-smartkarma-citation="entities:27333:1" rel="noopener">KKR &amp; Co Inc (KKR US)</a> (owns 48.0% of PHC), <a href="https://www.smartkarma.com/entities/mitsui-co-ltd" target="_blank" data-smartkarma-citation="entities:20799:1" rel="noopener">Mitsui &amp; Co Ltd (8031 JP)</a> (21.1%), Life Science Institute (13.2%) and <a href="https://www.smartkarma.com/entities/panasonic-corp" target="_blank" data-smartkarma-citation="entities:222:1" rel="noopener">Panasonic Corp (6752 JP)</a> (11.3%).</p></div><div><p>At the indicative price of JPY3,700 per share, PHC will have a market cap of JPY452 billion (US$4.1 billion). PHC plans to raise JPY172 billion ($1.57 billion) by offering 5.8 million primary shares (JPY22 billion raise) and 40.7 million secondary shares (JPY150 billion raise). </p></div><div><div>
<p>In <a href="https://www.smartkarma.com/insights/phc-holdings-ipo-initiation-sugar-high" target="_blank" data-smartkarma-citation="insights:57915" rel="noopener">PHC Holdings IPO Initiation: Sugar High</a>, we opined that at first glance, PHC offers solid growth, stable and healthy margins along with solid cash generation. However, on an organic basis, the revenue has declined in each of the last two financial years. The strong growth in the recent first quarter was largely due to low comps and an unsustainable revenue boost from COVID-19 related products. We concluded that PHC’s fundamentals are mixed and we are inclined to watch this IPO from the sidelines.</p>
<div class="content-highlight"><p>Our valuation analysis suggests that PHC is fully valued at the indicative price. In combination with the mixed fundamentals, we would pass on the IPO. </p></div>
</div></div>

PHC Holdings (6523 JP) is a leading diversified diagnostic, life sciences and medical device company serving global markets. PHC shareholders include KKR &amp; Co Inc (KKR US) (owns 48.0% of PHC), Mitsui &amp; Co Ltd (8031 JP) (21.1%), Life Science Institute (13.2%) and Panasonic Corp (6752 JP) (11.3%).At the indicative price of JPY3,700 per share, PHC will have a market cap of JPY452 billion (US$4.1 billion). PHC plans to raise JPY172 billion ($1.57 billion) by offering 5.8 million primary shares (JPY22 billion raise) and 40.7 million secondary shares (JPY150 billion raise). 
In PHC Holdings IPO Initiation: Sugar High, we opined that at first glance, PHC offers solid growth, stable and healthy margins along with solid cash generation. However, on an organic basis, the revenue has declined in each of the last two financial years. The strong growth in the recent first quarter was largely due to low comps and an unsustainable revenue boost from COVID-19 related products. We concluded that PHC’s fundamentals are mixed and we are inclined to watch this IPO from the sidelines.
Our valuation analysis suggests that PHC is fully valued at the indicative price. In combination with the mixed fundamentals, we would pass on the IPO. 


<p><a href="https://www.smartkarma.com/entities/phc-holdings-corp" target="_blank" data-smartkarma-citation="entities:34198:1" rel="noopener">PHC Holdings (6523 JP)</a> is a leading diversified diagnostic, life sciences and medical device company serving global markets. PHC shareholders include <a href="https://www.smartkarma.com/entities/kkr-co-inc" target="_blank" data-smartkarma-citation="entities:27333:1" rel="noopener">KKR &amp; Co Inc (KKR US)</a> (owns 48.0% of PHC), <a href="https://www.smartkarma.com/entities/mitsui-co-ltd" target="_blank" data-smartkarma-citation="entities:20799:1" rel="noopener">Mitsui &amp; Co Ltd (8031 JP)</a> (21.1%), Life Science Institute (13.2%) and <a href="https://www.smartkarma.com/entities/panasonic-corp" target="_blank" data-smartkarma-citation="entities:222:1" rel="noopener">Panasonic Corp (6752 JP)</a> (11.3%).</p><p>PHC plans to raise JPY172 billion ($1.57 billion) by offering 5.8 million primary shares and 40.7 million secondary shares at an indicative price of JPY3,700 per share. KKR, Mitsui &amp; Co, Life Science Institute, Panasonic and LCA 3 Moonshot are the selling shareholders. Books will open from 28 September to 4 October. The deal will price on 6 October and the shares are due to list on 14 October. </p><div class="content-highlight"><p>At first glance, PHC offers solid growth, stable and healthy margins along with solid cash generation. However, on an organic basis, the revenue has declined in each of the last two financial years. The strong growth in the recent first quarter was largely due to low comps and an unsustainable revenue boost from COVID-19 related products. On balance, we think that PHC’s fundamentals are mixed and we are inclined to watch this IPO from the sidelines. </p></div>

PHC Holdings (6523 JP) is a leading diversified diagnostic, life sciences and medical device company serving global markets. PHC shareholders include KKR &amp; Co Inc (KKR US) (owns 48.0% of PHC), Mitsui &amp; Co Ltd (8031 JP) (21.1%), Life Science Institute (13.2%) and Panasonic Corp (6752 JP) (11.3%).PHC plans to raise JPY172 billion ($1.57 billion) by offering 5.8 million primary shares and 40.7 million secondary shares at an indicative price of JPY3,700 per share. KKR, Mitsui &amp; Co, Life Science Institute, Panasonic and LCA 3 Moonshot are the selling shareholders. Books will open from 28 September to 4 October. The deal will price on 6 October and the shares are due to list on 14 October. At first glance, PHC offers solid growth, stable and healthy margins along with solid cash generation. However, on an organic basis, the revenue has declined in each of the last two financial years. The strong growth in the recent first quarter was largely due to low comps and an unsustainable revenue boost from COVID-19 related products. On balance, we think that PHC’s fundamentals are mixed and we are inclined to watch this IPO from the sidelines. 

European Event-Driven Analyst

Jesus Rodriguez Aguilar

<p>On 13 September 2021, <a href="https://www.smartkarma.com/entities/ocean-yield-asa" target="_blank" data-smartkarma-citation="entities:22243:1" rel="noopener">Ocean Yield ASA (OCY NO)</a> announced that it had reached an agreement with Octopus Bidco (owned by funds advised by <a href="https://www.smartkarma.com/entities/kkr-co-inc" target="_blank" data-smartkarma-citation="entities:27333:1" rel="noopener">KKR &amp; Co Inc (KKR US)</a>) on the terms of a recommended voluntary offer for all outstanding shares. KKR intends to expand the sale-and-leaseback specialist.</p>
<p>Consideration is <strong>NOK 41/share</strong>, cum dividend, for an <strong>implied equity value (deal value)</strong> of <strong>NOK 7,186.75 mn</strong> (NOK 7,200 mn as reported) and implied EV of 18,789.38 mn. This represents 12.4x EV/Fwd Revenue, 13.2x EV/Fwd EBITDA, 10.9x Fwd P/E and <strong>125.8x deal value/Consensus NAV</strong>.</p>
<p>Consideration will be <strong>increased with any incremental sales price received for the FPSO Dhirubhai above $19 mn</strong> if sold prior to settlement of the offer. If Aker Energy declares the purchase option at $35m, the <strong>offer price will rise to NOK 41.74/share</strong>.</p>
<p>Irrevocable undertakings from Aker Capital ASA (61.65% stake), and Board members and management holding approximately 2.02%.</p>
<p>Ocean Yield's financial situation continues to be stressed, and gearing is high. Book equity, $668.1 million vs. total assets of $2,132 billion, for an equity ratio of 31.3% at end of Q2. Leverage is 8.4x net debt/EBITDA and EBIT/interest is 7.2x.</p>
<p>In terms of tangible book value for its assets, the offer price represents 1.25x. Comparable companies are trading at a median 1.0x P/TBV, on this basis the offer seems fair.</p>
<p>The market is betting on Aker Energy declaring the purchase option at $35m, thus the offer price will rise to NOK 41.74/share, and the <strong>adjusted gross spread is then c. 1.8%</strong> (completion expected in Q4).</p>
<p>Although not a terribly exciting spread, it is a done deal. <strong>Long OCY OB, TP 41.74</strong>.</p>
<p>Some bonds look interesting, more specifically the Ocean Yield ASA - FRN SNR 12/2024, with a 5.32% YTW, but only $87 mn outstanding.</p>

On 13 September 2021, Ocean Yield ASA (OCY NO) announced that it had reached an agreement with Octopus Bidco (owned by funds advised by KKR &amp; Co Inc (KKR US)) on the terms of a recommended voluntary offer for all outstanding shares. KKR intends to expand the sale-and-leaseback specialist.
Consideration is NOK 41/share, cum dividend, for an implied equity value (deal value) of NOK 7,186.75 mn (NOK 7,200 mn as reported) and implied EV of 18,789.38 mn. This represents 12.4x EV/Fwd Revenue, 13.2x EV/Fwd EBITDA, 10.9x Fwd P/E and 125.8x deal value/Consensus NAV.
Consideration will be increased with any incremental sales price received for the FPSO Dhirubhai above $19 mn if sold prior to settlement of the offer. If Aker Energy declares the purchase option at $35m, the offer price will rise to NOK 41.74/share.
Irrevocable undertakings from Aker Capital ASA (61.65% stake), and Board members and management holding approximately 2.02%.
Ocean Yield's financial situation continues to be stressed, and gearing is high. Book equity, $668.1 million vs. total assets of $2,132 billion, for an equity ratio of 31.3% at end of Q2. Leverage is 8.4x net debt/EBITDA and EBIT/interest is 7.2x.
In terms of tangible book value for its assets, the offer price represents 1.25x. Comparable companies are trading at a median 1.0x P/TBV, on this basis the offer seems fair.
The market is betting on Aker Energy declaring the purchase option at $35m, thus the offer price will rise to NOK 41.74/share, and the adjusted gross spread is then c. 1.8% (completion expected in Q4).
Although not a terribly exciting spread, it is a done deal. Long OCY OB, TP 41.74.
Some bonds look interesting, more specifically the Ocean Yield ASA - FRN SNR 12/2024, with a 5.32% YTW, but only $87 mn outstanding.

United States

KKR & Co. Inc. operates as an investment firm. The Company manages investments such as private equity, energy, infrastructure, real estate, credit strategies, and hedge funds. KKR & Co serves clients worldwide.

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KKR & Co (KKR US)

Link Gets Another Offer from Carlyle

Link received another offer from Carlyle worth A$5.38 per share. Carlyle has room to sweeten its bid as its latest bid values core Link at A$3.00...

Arun George

Upgrading Financials To Overweight; Downgrading Communications To Market Weight

We are upgrading Financials to overweight; Financial Sector ETFs (XLF, RYF), banks (KBE, KRE), and insurance stocks (KIE) are all breaking out to...

Vermilion Research

PHC Holdings IPO: Valuation Insights

Our valuation analysis suggests that PHC is fully valued at the indicative price. In combination with the mixed fundamentals, we would pass on the...

Arun George

PHC Holdings IPO Initiation: Sugar High

PHC plans to raise JPY172 billion ($1.57 billion) at an indicative price of JPY3,700 per share. We think that PHC’s fundamentals are mixed and we...

Arun George

KKR/Ocean Yield: Recommended Offer

A done deal. The market is betting on Aker Energy declaring the purchase option at $35m, thus offer rising to NOK 41.74/share, for a 1.8% adjusted...

Jesus Rodriguez Aguilar

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