IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

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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

<a href="https://www.smartkarma.com/entities/374" target="_blank" data-smartkarma-citation="entities:374:1">MYOB Group Ltd (MYO AU)</a> shares soared 19% to A$3.55 on an unsolicited, non-binding takeover bid from <a href="https://www.smartkarma.com/entities/27333" target="_blank" data-smartkarma-citation="entities:27333:1">KKR &amp; Co Inc (KKR US)</a>. KKR’s price of A$3.70 cash per share represents a premium of 24% to the undisturbed price of A$2.98 per share. MYOB also announced that Bain Capital sold 17.6% of its shareholding to KKR at A$3.15 per share, taking Bain Capital and KKR’s shareholding to 6.1% and 19.9% respectively.KKR’s takeover bid values MYOB at an EV of A$2.6 billion ($1.8 billion), which implies an FY19 EV/Sales of 5.4x, EV/EBITDA of 13.2x and P/E of 30.2x. The MYOB Board is assessing KKR’s proposal and will make a recommendation in due course. We believe that it will be in the best interest of shareholders for the MYOB board to accept the bid due to the following factors:<ol>
<li>Since its IPO in May 2015 at A$3.65 per share, MYOB’s share price performance has been lacklustre. The lacklustre share price performance is understandable as MYOB’s organic growth has declined from 9% in FY15 to 7% in 1H18. MYOB organic growth is barely above <a href="https://www.smartkarma.com/entities/22136" target="_blank" data-smartkarma-citation="entities:22136:1">Sage Group (SGE LN)</a> (which is facing its own issues) and is in the bottom quartile among its listed peers.</li>
<li>MYOB’s margins are under pressure as it is in the midst of a two-year “accelerated investment” phase. Shareholders’ patience will be tested as management are basing the success of the accelerated investment on achieving targets in 2022. Notably, before KKR’s proposal, the mean sell-side analyst recommendation was Hold (code for sell) with an average price target of A$3.16.</li>
<li>MYOB and <a href="https://www.smartkarma.com/entities/390" target="_blank" data-smartkarma-citation="entities:390:1">Xero Ltd (XRO AU)</a> capitalise R&amp;D while Sage and <a href="https://www.smartkarma.com/entities/8235" target="_blank" data-smartkarma-citation="entities:8235:1">Intuit Inc (INTU US)</a> fully expense R&amp;D. Consequently, relative valuation based on EV/EBITDA and P/E is like comparing apples with oranges. We believe a meaningful peer comparison is FY19 EV/Sales vs three-year revenue CAGR. Based on KKR’s proposed takeover price of A$3.70, MYOB lies on the linear trend line for FY19 EV/Sales vs three-year revenue CAGR. In other words, the KKR offer is at the fair value for MYOB's forecasted three-year revenue CAGR.</li>
<li>We believe that the chance of a counterbid is remote as KKR owns 19.9% of MYOB’s shares, which is effectively a blocking stake. Also, competitors are doubtful bidders. Sage, which attempted to buy MYOB in 2011, is in search of a new CEO and Intuit is already delivering strong organic growth from its Small Business &amp; Self-Employed business segment.</li>
</ol><div class="content-highlight">We believe that the KKR proposal fairly values MYOB. While bulls would argue for a higher price based on the potential ROI of its current investment program, it will take years for the investment to bear results. If the MYOB board acts in the best interests of all shareholders, it should aim for KKR’s proposal to result in a transaction at least at the current terms.</div>

MYOB Group Ltd (MYO AU) shares soared 19% to A$3.55 on an unsolicited, non-binding takeover bid from KKR &amp; Co Inc (KKR US). KKR’s price of A$3.70 cash per share represents a premium of 24% to the undisturbed price of A$2.98 per share. MYOB also announced that Bain Capital sold 17.6% of its shareholding to KKR at A$3.15 per share, taking Bain Capital and KKR’s shareholding to 6.1% and 19.9% respectively.KKR’s takeover bid values MYOB at an EV of A$2.6 billion ($1.8 billion), which implies an FY19 EV/Sales of 5.4x, EV/EBITDA of 13.2x and P/E of 30.2x. The MYOB Board is assessing KKR’s proposal and will make a recommendation in due course. We believe that it will be in the best interest of shareholders for the MYOB board to accept the bid due to the following factors:
Since its IPO in May 2015 at A$3.65 per share, MYOB’s share price performance has been lacklustre. The lacklustre share price performance is understandable as MYOB’s organic growth has declined from 9% in FY15 to 7% in 1H18. MYOB organic growth is barely above Sage Group (SGE LN) (which is facing its own issues) and is in the bottom quartile among its listed peers.
MYOB’s margins are under pressure as it is in the midst of a two-year “accelerated investment” phase. Shareholders’ patience will be tested as management are basing the success of the accelerated investment on achieving targets in 2022. Notably, before KKR’s proposal, the mean sell-side analyst recommendation was Hold (code for sell) with an average price target of A$3.16.
MYOB and Xero Ltd (XRO AU) capitalise R&amp;D while Sage and Intuit Inc (INTU US) fully expense R&amp;D. Consequently, relative valuation based on EV/EBITDA and P/E is like comparing apples with oranges. We believe a meaningful peer comparison is FY19 EV/Sales vs three-year revenue CAGR. Based on KKR’s proposed takeover price of A$3.70, MYOB lies on the linear trend line for FY19 EV/Sales vs three-year revenue CAGR. In other words, the KKR offer is at the fair value for MYOB's forecasted three-year revenue CAGR.
We believe that the chance of a counterbid is remote as KKR owns 19.9% of MYOB’s shares, which is effectively a blocking stake. Also, competitors are doubtful bidders. Sage, which attempted to buy MYOB in 2011, is in search of a new CEO and Intuit is already delivering strong organic growth from its Small Business &amp; Self-Employed business segment.
We believe that the KKR proposal fairly values MYOB. While bulls would argue for a higher price based on the potential ROI of its current investment program, it will take years for the investment to bear results. If the MYOB board acts in the best interests of all shareholders, it should aim for KKR’s proposal to result in a transaction at least at the current terms.

MYOB (MYO AU): A Fairly-Priced Takeover Bid from KKR

APAC IPOs & Placements

Zhen Zhou, Toh

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

China Renaissance Holdings / Equity Capital Markets

<a href="https://www.smartkarma.com/entities/27365" target="_blank" data-smartkarma-citation="entities:27365:1">China Renaissance Holdings (1911 HK)</a> is looking to raise up to US$433m in its IPO. Proceeds raised will be mainly used to expand its investment banking business, investment management business, and develop its wealth management business.Breaking down CRC by business segments suggest that investment banking has been struggling and losing market share based on transaction value. Competition is intense, driving down fees and transaction value per advisory service. However, the bright spot comes from CRC's investment management segment which it has cemented itself as a reputable private equity investor with a track record of picking new economy unicorns.CRC also recently established its securities business to capture the full lifecycle of their clients as well as China's growing finance market. While it is still early days for the business is already valued at RMB7bn valuation from its December 2017 funding. In this insight, we will be looking at the company's past financial performance, break down its respective business segments' market share, and compare its valuation to other Hong Kong-listed Chinese investment banks and securities firms. We will also run the deal through our ECM framework.

China Renaissance Holdings (1911 HK) is looking to raise up to US$433m in its IPO. Proceeds raised will be mainly used to expand its investment banking business, investment management business, and develop its wealth management business.Breaking down CRC by business segments suggest that investment banking has been struggling and losing market share based on transaction value. Competition is intense, driving down fees and transaction value per advisory service. However, the bright spot comes from CRC's investment management segment which it has cemented itself as a reputable private equity investor with a track record of picking new economy unicorns.CRC also recently established its securities business to capture the full lifecycle of their clients as well as China's growing finance market. While it is still early days for the business is already valued at RMB7bn valuation from its December 2017 funding. In this insight, we will be looking at the company's past financial performance, break down its respective business segments' market share, and compare its valuation to other Hong Kong-listed Chinese investment banks and securities firms. We will also run the deal through our ECM framework.

China Renaissance Capital IPO Review - Priced to Perfection

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)

MYOB (MYO AU): A Fairly-Priced Takeover Bid from KKR

MYOB Group Ltd (MYO AU) shares soared 19% to A$3.55 on an unsolicited, non-binding takeover bid from KKR & Co Inc (KKR US). KKR’s price of...

Arun George

China Renaissance Capital IPO Review - Priced to Perfection

China Renaissance Holdings (1911 HK) is looking to raise up to US$433m in its IPO. Proceeds raised will be mainly used to expand its investment...

Zhen Zhou, Toh

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52-week Range

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