Pan-Asia Index Flows & Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Pan-Asia Index Flows & Special Situations

Quiddity Advisors

Pan-Asia Catalysts/Events

Event-Driven

<p>On 16 November 2020, Australia-based Childcare company <a href="https://www.smartkarma.com/entities/think-childcare-ltd" target="_blank" data-smartkarma-citation="entities:18899:1" rel="noopener">Think Childcare (TNK AU)</a> received a <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02308970-3A555430?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">Non-binding Indicative Proposal</a> at an Offer Price of A$1.35/share from the PE arm of <a href="https://www.alceon.com.au/" target="_blank" rel="noopener">Alceon Group</a> which is an Australian independent multi-strategy alternative investments firm. </p><p>In my insight <a href="https://www.smartkarma.com/insights/think-childcare-tnk-au-takeover-proposal-from-alceon-group-seems-light" target="_blank" data-smartkarma-citation="insights:45429" rel="noopener">Think Childcare (TNK AU) : Takeover Proposal From Alceon Group Seems Light</a>, I concluded that this Offer Price of A$1.35 seemed light on a growth-adjusted basis and when compared against the valuations of other local and global peers.  I mentioned the possibility of bumpitrage but low liquidity made it iffy and I was not bullish on the trade.</p><p>A week later, on 23rd Nov 2020, TNK received a <em><strong><a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02311977-3A556064?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">competitive bid</a></strong></em> at an Offer Price of A$1.75/share from Busy Bees Early Learning Australia Pty Ltd which is the Australian arm of multinational child care firm Busy Bees Nursery Group which is backed by Ontario Teachers’ Pension Plan (OTPP) and Temasek.</p><p><em>I got bullish</em> and discussed this competitive situation in <a href="https://www.smartkarma.com/insights/think-childcare-tnk-au-competitive-bid-by-busy-bees" target="_blank" data-smartkarma-citation="insights:45609" rel="noopener">Think Childcare (TNK AU): Competitive Bid by Busy Bees</a> pointing out the implications of Alceon's matching right and since TNK's share price of A$1.60 translated to a <em>very</em> attractive spread given the high likelihood of a further overbid, I was Bullish on the stock.</p><blockquote><p><strong>THE TRADE: I would be LONG now.</strong> I expect TNK shareholders to receive at least A$1.75/share at the end of this competitive situation and I also expect TNK to trade much closer to terms once there is more clarity on Alceon's stance in the next 5 days. <strong>(<a href="https://www.smartkarma.com/insights/think-childcare-tnk-au-competitive-bid-by-busy-bees" target="_blank" rel="noopener">written 23 Nov 2020</a>)</strong></p></blockquote><p>Although initially Alceon let their matching right lapse, a month later, on 24th December 2020, they launched a <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02326507-3A558868?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">revised non-binding and indicative proposal</a> matching that of Busy Bees' non-binding bid (A$1.75/share) and also announced they had acquired a relevant interest of 19.23% in TNK.  </p><p>Today, Busy Bees <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02332137-3A559736?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">revised their competitive bid</a> to A$2.10/share -  a 20% bump from the previous bid level. </p><p>TNK shares last closed at A$2.00. </p><div><p><em>More below the fold. </em></p></div><hr><div><div><div class="content-remarks"><p>For more information about M&amp;A rules, regulations, and practices in Australia, please refer to <a href="https://www.smartkarma.com/insights/quiddity-australia-m-a-guide-2019" target="_blank" data-smartkarma-citation="insights:30118" rel="noopener">Quiddity Australia M&amp;A Guide 2019</a> and <a href="https://www.smartkarma.com/insights/quiddity-m-a-australia-foreign-investment-reforms" target="_blank" data-smartkarma-citation="insights:40210" rel="noopener">Quiddity M&amp;A: Australia Foreign Investment Reforms</a> </p></div></div></div>

On 16 November 2020, Australia-based Childcare company Think Childcare (TNK AU) received a Non-binding Indicative Proposal at an Offer Price of A$1.35/share from the PE arm of Alceon Group which is an Australian independent multi-strategy alternative investments firm. In my insight Think Childcare (TNK AU) : Takeover Proposal From Alceon Group Seems Light, I concluded that this Offer Price of A$1.35 seemed light on a growth-adjusted basis and when compared against the valuations of other local and global peers.  I mentioned the possibility of bumpitrage but low liquidity made it iffy and I was not bullish on the trade.A week later, on 23rd Nov 2020, TNK received a competitive bid at an Offer Price of A$1.75/share from Busy Bees Early Learning Australia Pty Ltd which is the Australian arm of multinational child care firm Busy Bees Nursery Group which is backed by Ontario Teachers’ Pension Plan (OTPP) and Temasek.I got bullish and discussed this competitive situation in Think Childcare (TNK AU): Competitive Bid by Busy Bees pointing out the implications of Alceon's matching right and since TNK's share price of A$1.60 translated to a very attractive spread given the high likelihood of a further overbid, I was Bullish on the stock.THE TRADE: I would be LONG now. I expect TNK shareholders to receive at least A$1.75/share at the end of this competitive situation and I also expect TNK to trade much closer to terms once there is more clarity on Alceon's stance in the next 5 days. (written 23 Nov 2020)Although initially Alceon let their matching right lapse, a month later, on 24th December 2020, they launched a revised non-binding and indicative proposal matching that of Busy Bees' non-binding bid (A$1.75/share) and also announced they had acquired a relevant interest of 19.23% in TNK.  Today, Busy Bees revised their competitive bid to A$2.10/share -  a 20% bump from the previous bid level. TNK shares last closed at A$2.00. More below the fold. For more information about M&amp;A rules, regulations, and practices in Australia, please refer to Quiddity Australia M&amp;A Guide 2019 and Quiddity M&amp;A: Australia Foreign Investment Reforms 

Think Childcare (TNK AU): Bigger Bid by Busy Bees

Silver Point

Thomas J. Monaco

Independent Insight Provider

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Equity Bottom-Up

<p><strong><em>*Interesting Strategic Move: </em></strong>On December 23, 2020, Challenger (CGF.AU) announced its intention to acquire MyLifeMyFinance (MLMF), an Australian savings &amp; loan (S&amp;L) for AUD 35 mn from MyLifeMyMoney Superannuation Fund (known as “Catholic Super”). Following the acquisition, Challenger will hold an Australian Prudential Regulation Authority (APRA) authorized deposit-taking institution (ADI) license. Unlike traditional Australian banks, Challenger will relay far less on home lending an rather focus its asset generation on existing investment activities;  and</p><p><strong><em>*But A Pricey Deal: </em></strong>While this is an interesting strategic transaction for Challenger, it was not cheap. Challenger paid 2.4x P/BV for MLMF based on 3Q20 figures – well above the commercial bank average in Australia. We infer from Challenger’s guidance for FY 2021 that MLMF generates approximately AUD 2 mn per annum – implying a P/E of 17.5x. Taking its 60 bp cover of stated loans, we are confident that MLMF is actually understating its full cost by between AUD 2-3 mn. It’s a good thing the absolute dollar value was tiny. </p>

*Interesting Strategic Move: On December 23, 2020, Challenger (CGF.AU) announced its intention to acquire MyLifeMyFinance (MLMF), an Australian savings &amp; loan (S&amp;L) for AUD 35 mn from MyLifeMyMoney Superannuation Fund (known as “Catholic Super”). Following the acquisition, Challenger will hold an Australian Prudential Regulation Authority (APRA) authorized deposit-taking institution (ADI) license. Unlike traditional Australian banks, Challenger will relay far less on home lending an rather focus its asset generation on existing investment activities;  and*But A Pricey Deal: While this is an interesting strategic transaction for Challenger, it was not cheap. Challenger paid 2.4x P/BV for MLMF based on 3Q20 figures – well above the commercial bank average in Australia. We infer from Challenger’s guidance for FY 2021 that MLMF generates approximately AUD 2 mn per annum – implying a P/E of 17.5x. Taking its 60 bp cover of stated loans, we are confident that MLMF is actually understating its full cost by between AUD 2-3 mn. It’s a good thing the absolute dollar value was tiny. 

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

<div>
<p>On the 12 October,  <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> <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02292481-2A1255763?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">announced</a> a conditional, non-binding indicative proposal from a consortium comprising PEP and the Carlyle Group, by way of a Scheme. The indicative cash price was A$5.20/share, a 30% premium to last close. Perpetual, holding 9.65% of shares out, said it would vote for a firm Offer of $5.20/share and above.</p>
</div>
<div>
<div>On the 23 October, Link <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02297758-2A1258281?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">said</a> the proposal from PEP/Carlyle "<em>materially undervalued the company</em>". </div>
<div></div>
<div>Three days later PEP/Carlyle <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02298663-2A1258716?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">tabled</a> a A$5.40/share non-binding indicative Offer, in cash. The proposal includes an option of a cash offer for Link ex-Property Exchange Australia (PEXA) of A$3.80/share, along with the ability to take an indirect interest in PEXA. Shareholders with <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02298654-2A1258715?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">14.62%</a> of shares out stated their intention to vote in favour of PEP/Carlyle's latest proposal, in the absence of a superior offer.</div>
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<p>PEP/Carlyle said it required six weeks of due diligence, and if DD access was not provided by the 28 October, they would walk. Link <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02300645-2A1259592?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">responded</a> that the proposal was not compelling - but gave the consortium DD access nonetheless.</p>
<h3>The New News</h3>
<p>Software provider <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> has now pitched a non-binding indicative proposal, by way of Scheme, at A$5.65/share, 4.6% above PEP/Carlyle's proposal.</p>
<p>Conditions to this proposal largely mirror that of PEP/Carlyle's: confirmatory DD, obtaining debt financing, FIRB (and ACCC). And no further dividends.</p>
<p>Less than six weeks ago, Link's board said a $5.40/share Offer did not represent compelling value for Link. It is difficult to believe an offer 4.6% higher will change that view.</p>
<p>More below the fold.</p>
</div>


On the 12 October,  Link Administration Holdings (LNK AU) announced a conditional, non-binding indicative proposal from a consortium comprising PEP and the Carlyle Group, by way of a Scheme. The indicative cash price was A$5.20/share, a 30% premium to last close. Perpetual, holding 9.65% of shares out, said it would vote for a firm Offer of $5.20/share and above.


On the 23 October, Link said the proposal from PEP/Carlyle "materially undervalued the company". 

Three days later PEP/Carlyle tabled a A$5.40/share non-binding indicative Offer, in cash. The proposal includes an option of a cash offer for Link ex-Property Exchange Australia (PEXA) of A$3.80/share, along with the ability to take an indirect interest in PEXA. Shareholders with 14.62% of shares out stated their intention to vote in favour of PEP/Carlyle's latest proposal, in the absence of a superior offer.



PEP/Carlyle said it required six weeks of due diligence, and if DD access was not provided by the 28 October, they would walk. Link responded that the proposal was not compelling - but gave the consortium DD access nonetheless.
The New News
Software provider Ss&amp;C Technologies (SSNC US) has now pitched a non-binding indicative proposal, by way of Scheme, at A$5.65/share, 4.6% above PEP/Carlyle's proposal.
Conditions to this proposal largely mirror that of PEP/Carlyle's: confirmatory DD, obtaining debt financing, FIRB (and ACCC). And no further dividends.
Less than six weeks ago, Link's board said a $5.40/share Offer did not represent compelling value for Link. It is difficult to believe an offer 4.6% higher will change that view.
More below the fold.


Link Admin (LNK AU): SS&C Trumps PEP/Carlyle

<div>
<p>Back on the 12 October,  <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> <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02292481-2A1255763?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">announced</a> a conditional, non-binding indicative proposal from a consortium comprising PEP and the Carlyle Group, by way of a Scheme. The indicative cash price was A$5.20/share, a 30% premium to last close. Perpetual, holding 9.65% of shares out, said it would vote for a firm Offer of $5.20/share and above.</p>
</div>
<div>On the 23 October, Link <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02297758-2A1258281?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">said</a> the proposal from PEP/Carlyle "<em>materially undervalued the company</em>". </div>
<div>
<h3>The New News</h3>
<p>PEP/Carlyle have <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02298663-2A1258716?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">now</a> tabled a A$5.40/share non-binding indicative Offer, in cash. The proposal includes an option of a cash offer for Link ex-Property Exchange Australia (PEXA) of 3.80/share, along with the ability to take an indirect interest in PEXA.  Shareholders with 14.62% of shares out have stated their intention to vote in favour of PEP/Carlyle's latest proposal, in the absence of a superior offer.</p>
<p>PEP/Carlyle said it requires six weeks of due diligence, and if DD access is not provided by the 28 October, they will walk.</p>
<p>For just a 3.8% bump, that is a tad aggressive. That adds risk to a firm deal unfolding.</p>
</div>
<div>
<p>As always, more below the fold.</p>
</div>


Back on the 12 October,  Link Administration Holdings (LNK AU) announced a conditional, non-binding indicative proposal from a consortium comprising PEP and the Carlyle Group, by way of a Scheme. The indicative cash price was A$5.20/share, a 30% premium to last close. Perpetual, holding 9.65% of shares out, said it would vote for a firm Offer of $5.20/share and above.

On the 23 October, Link said the proposal from PEP/Carlyle "materially undervalued the company". 

The New News
PEP/Carlyle have now tabled a A$5.40/share non-binding indicative Offer, in cash. The proposal includes an option of a cash offer for Link ex-Property Exchange Australia (PEXA) of 3.80/share, along with the ability to take an indirect interest in PEXA.  Shareholders with 14.62% of shares out have stated their intention to vote in favour of PEP/Carlyle's latest proposal, in the absence of a superior offer.
PEP/Carlyle said it requires six weeks of due diligence, and if DD access is not provided by the 28 October, they will walk.
For just a 3.8% bump, that is a tad aggressive. That adds risk to a firm deal unfolding.


As always, more below the fold.


Link Admin: Hardball Tactics After Meagre Bump

<p>Back in <a href="https://www.financialstandard.com.au/news/pacific-equity-partners-to-purchase-asx-perpetual-registrars-19426" target="_blank" rel="noopener">August 2005</a>, Private Equity Partners acquired share registry outfit ASX Perpetual Registrars (APR) for ~A$132mn. PEP followed with the acquisition of Telstra's fund administrator Australian Administration Services, which was rebranded Link Administration, which subsequently acquired APR.</p>
<p>After further, substantial investments and tech upgrades, PEP IPO'ed <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> in October 2015 at $6.37/share, the top end of the range. PEP cleared out its holding in September 2016 at A$8.38/share. </p>
<p>Link has morphed since PEP's exit, significantly growing its domestic and global operations, via the acquisition of UK-based Capital Asset Services in <a href="https://www.linkgroup.com/media/Link-Group-CAPITA-ASSET-SERVICES-Acquisition-web-release.pdf" target="_blank" rel="noopener">2017</a> (for A$1.493bn); the Property Exchange Australia (known as PEXA), Australia's first digital property settlement platform, acquired by a Link-led consortium (alongside CBA and Morgan Stanley) in 2018 for <a href="https://www.computerworld.com/article/3469078/cba-link-group-and-morgan-stanley-snap-up-pexa.html" target="_blank" rel="noopener">$1.6bn</a>, which increased Link's shareholding to 44.2% from 19.8%; and the acquisition of Pepper Group's European loan servicing, advisory, and asset management business for A$266mn in January this year.</p>
<h3>The New News</h3>
<p>Link has announced its has received a conditional, non-binding indicative proposal from a consortium comprising PEP and the Carlyle Group, by way of a Scheme. The indicative cash price is A$5.20/share, a 30% premium to last close.</p>
<p>Perpetual, holding 9.65% of shares out, said it would vote for a firm Offer of $5.20/share and above.</p>
<p>This is a non-binding proposal and there is no guarantee a firm offer will unfold. </p>
<p>But this is a business with which PEP is well acquainted, having orchestrated and developed Link's initial business 15 years ago.</p>
<p>As always, more below the fold.</p>

Back in August 2005, Private Equity Partners acquired share registry outfit ASX Perpetual Registrars (APR) for ~A$132mn. PEP followed with the acquisition of Telstra's fund administrator Australian Administration Services, which was rebranded Link Administration, which subsequently acquired APR.
After further, substantial investments and tech upgrades, PEP IPO'ed Link Administration Holdings (LNK AU) in October 2015 at $6.37/share, the top end of the range. PEP cleared out its holding in September 2016 at A$8.38/share. 
Link has morphed since PEP's exit, significantly growing its domestic and global operations, via the acquisition of UK-based Capital Asset Services in 2017 (for A$1.493bn); the Property Exchange Australia (known as PEXA), Australia's first digital property settlement platform, acquired by a Link-led consortium (alongside CBA and Morgan Stanley) in 2018 for $1.6bn, which increased Link's shareholding to 44.2% from 19.8%; and the acquisition of Pepper Group's European loan servicing, advisory, and asset management business for A$266mn in January this year.
The New News
Link has announced its has received a conditional, non-binding indicative proposal from a consortium comprising PEP and the Carlyle Group, by way of a Scheme. The indicative cash price is A$5.20/share, a 30% premium to last close.
Perpetual, holding 9.65% of shares out, said it would vote for a firm Offer of $5.20/share and above.
This is a non-binding proposal and there is no guarantee a firm offer will unfold. 
But this is a business with which PEP is well acquainted, having orchestrated and developed Link's initial business 15 years ago.
As always, more below the fold.

Australia

Challenger Limited is an investment management firm  The Company offers annuities and other retirement income products as well as manages assets for domestic and international clients.

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Challenger Ltd (CGF AU)

Think Childcare (TNK AU): Bigger Bid by Busy Bees

Investors in Think Childcare have seen a bump, a match, and now another 20% bump. Alceon is sitting on 20% gains and can match, beat, or sell. It's...

Janaghan Jeyakumar, CFA

Challenger - Big Opportunity

CHALLENGER LTD: Challenger announced its intention to acquire MyLifeMyFinance . This deal, while small, was not cheap - but no doubt will be...

Thomas J. Monaco

Link Admin (LNK AU): SS&C Trumps PEP/Carlyle

This remains a non-binding situation, albeit a competitive one. I'd play the spread, and pay at SS&C Technologie's terms.

David Blennerhassett

Link Admin: Hardball Tactics After Meagre Bump

The initial terms were opportunistic. So are the revised terms. But the short time frame in which to open the data room is a gun to the head of...

David Blennerhassett

Link Admin/PEP: All Together Now. Again

Four years after exiting a company it built from scratch, PEP returns with an indicative proposal to take private the largest provider of...

David Blennerhassett

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