Hi all, just wanted to get everyone’s feedback on a corporate exercise my firm is doing. Over the past year we have slowly engineered a reverse takeover and we are now on the final phase which would be injecting/acquiring a property development company (majority shareholder’s private co.) however given soft market sentiment for property development we are looking for ways we can increase the value of the target co (the property development co).
We have some strategy in mind but wanted to get your opinion as well as if you have any other idea on what we can do:
Improve gearing ratio. We have taken a look at the comps universe and have noticed a positive correlation between gearing ratio and valuation multiple thus by improving our gearing we can use this as rationale to fetch a higher valuation.
Get an institutional investor or any other influential investor in before the injection/acqusition. We believe that by having them in, it will act as a rubber stamp
Acquire other non property related company diversifying the company which will hopefully provide a multiplier effect
What do you guys think of the strategies, is there anything else that can be accomplished?
going private typically doesnt enhance value. people are typically doing it to buy something trading cheap. it allows you to reduce transparency typically. and keeps public opinion out of the way, so you’ll be able to do things you’d usually get flak on as a public co.
typically you dont want to enhance value prior to taking over. just take them over when they are cheap then enhance value.
anyways on to your moves that enhance value,:
not sure on strat 1 since that’s specific to the industry. but if ur trying to copy the industry, then you are planning to take it public again eventually.
yes, this will help. though they might ask for terms you might not like. hard to price.
i dont think conglomerates get a premium valuation. people give higher valuation to pure plays (increases odds of anotehr co taking it over, cuz less messy). conglomerates provide stability of income though since you are diversified!
the only way to truly enhance value. is to increase earnings and cash flow. if you are overlevered, paying off debt is also a good way.
but here are some pe go to moves
take cheap co private, while industry is going through problems
cost cut to improve earnings.
wait for industry to improve, improving top and bottom line.
load it up with debt and receive special dividends.
I think there may have been a confusion here. Probably bad explanation on my part but let me try to clarify:
Basically, my boss owns majority (direct + indirect) shareholding interest of public list co and also owns 100% of a private co. We intend to inject the private co into the public list co however prior to the injection we are looking for strategies we can execute to push the valuation of the private co higer. We are comfortable that we can achieve a valuation of 250m for the private co however we are trying to push for 300m+ valuation thus the additional 50m+ would be the additional value that we hope to create from executing the value accretion strategies. Do you guys have any idea how we can achieve such strategies?
i mean only thing i can think of is synergies and using next year’s adjusted cash flows/earnings. you can argue that some of the expenses in the private co will no longer be around once acquired. you can also say that cross selling on private co customers will drive up additional revenue with marginal uptick in cost.