Compelled takeovers: Here are 6 ASX companies that had no choice but to sell out

Sometimes, M&A deals occur that could be described as compelled takeovers. By this term, we are not alluding to the phase of a deal where 90% have accepted and the remaining shareholders get bought out whether they like it or not.

We are talking about scenarios where even if investors in a company could have chosen not to sell, they had no choice in the sense that the company had no future otherwise. In many cases, it can result from reputational hits the company cannot recover from.

In others, a company may have listed at a wrong time and not recovered. Or perhaps they were just outmuscled by competitors that management never saw as a threat, until they was way too late to respond.

This article looks at 6 such cases.

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Compelled takeovers: Here are 6 ASX companies that had no choice but to sell out

Estia Health

Estia Health operated aged care centres. It was far from the only one to struggle as a listed company, but shared many of the same issues its peers faced. It did not neglect these issues but had to pour money into them just to even try, and it still was not enough.

These issues included funding uncertainty following the Aged Care Royal Commission, regulatory standards (such as around pricing, staffing ratios and quality standards) high cost inflation (especially amongst staff) as well as consequential low market confidence in sector profitability and regulatory clarity.

All of these capped any possible re-rating and made a takeover the only viable option for shareholder value to be realised. Private equity (Bain Capital) could run the asset with a longer time horizon and restructure away from public-market scrutiny.

APM Human Services

APM is an employment services company that exited the ASX barely 3 years after it entered. Investors did not like it due to perceived contract concentration risk (especially with the NDIS), the payoffs (if any) from its acquisition strategy, the perception of low-quality earnings and question marks about growth visibility. It was taken over by Madison Dearborn Partners at $1.45 having been at highs of $3.55 a share.

InvoCare

InvoCare was the country’s largest funeral provider. And its industry caters for one of life’s two certainties. What was not to love?

True, IVCwas a structurally defensive business, but sentiment around death-care volumes, pricing regulation concerns, inflation and capital expenditure cycles suppressed the share price. The market repeatedly refused to reward the long-term thesis because of those factors. It was taken over for $1.8bn by TPG in late 2023, leaving Propel Funeral Partners (ASX:PFP) as the only listed funeral provider.

United Malt Group

United Malt was spun out of GrainCorp, consisting of the latter company’s barley business. UMG’s 4 years stint as a standalone listed company did not go well, it suffered operational issues (margin pressure from supply chain disruptions, energy costs and crop yields) and margin pressure. There was no other way for it to end other than with a takeover.

A re-rating might have been possible if execution improved, but the timeline was long and uncertain. The bidder (ADM) had a lower cost of capital and synergy logic and so the takeover premium was attractive relative to the slow grind of recovery.

Crown Resorts

We all know how Star Entertainment (ASX:SGR) has fared in the nearly 4 years since Crown delisted, not just because of management failures but also because of industry trends including the absence of foreign high-rollers and lack of desire from locals to deal with the KYC checks casinos have to do that pokies at local pubs do not.

It is easy to forget that Crown was facing license suitability investigations and other regulatory probes. This was in light of entrenched cultural issues, poor risk controls and governance failures. There were mandatory remediation programs, but these would end up taking years

Crown’s regulatory investigations, governance failures, and licence issues meant a market re-rating was virtually impossible. Going private was arguably the only realistic path to stabilisation.

Sydney Airport

It is easy to forget the situation Sydney Airport was in when it was taken over in 2021. Travel demand was literally wiped out, and the share price collapsed. At the same time, near-zero interest rates increased private infrastructure investor demand, so management opted to sell to investors with a longer horizon and offering cheaper capital.