RICH PICKINGS: Time to deal

With some big international names calling the bottom of the cycle, Australia's wealthiest entrepreneurs have decided to take advantage of the weak and are making some lucrative deals.

In the last few weeks, all sorts have people have declared that the economy has passed the bottom and is now in recovery mode, including veteran investors George Soros and Warren Buffett, famed economist Nouriel Roubini and even RBA Governor Glenn Stevens.

Judging from the events of the last few weeks, Australia’s wealthiest entrepreneurs have also decided that the worst is behind us. They’ve now got one thing on their mind – it’s time to make a deal.

The level of deal-making activity seen in the last few weeks is surprising – almost as if our wealthy entrepreneurs have decided the economy has finally reached a point where it’s time to move. The stockmarket rally looks solid, consumer confidence has strengthened for three straight months and credit markets appear to be thawing nicely.

Let’s have a look at the strategies the rich are using to seize early-recovery opportunities. And bear in mind, these have all happened with a 10 day period.

Private property

We’ve been talking for some time about the possibility entrepreneurs in listed companies will take advantage of depressed share prices and take their company private. In the last week, we’ve seen two examples of this tactic.

One of the biggest announcements of the week came from cinema and leisure company Village Roadshow. John and Robert Kirby, sons of Village founder Roc Kirby, have announced they are considering taking the company private in conjunction with the company’s managing director, Graham Burke. The deal is likely to cost the trio around $90 million, although the Kirby’s (who are worth $180 million) and Burke could be getting a bargain. Village Roadshow’s share price has dropped by 20 per cent in the past 12 months, even allowing for the takeover premium built into the share price late last week after the Kirby’s made their announcement.

Recruitment entrepreneur Leon Lau, the managing director of Peoplebank, also got in on the act. He’s taken advantage of a 40 per cent fall in the company’s share price to launch a privatisation bid; Lau controls a stake in the company worth about $47 million.

Cashing in on the dragon

Australia’s relationship with China might be a bit strained at present, but there is still plenty of opportunity to cash in on the dragon economy, particularly if your relationships with Chinese companies are strong enough.

Travers Duncan and Brian Flannery, the chairman and chief executive of coal mining company Felix Resources, could pocket more than $500 million each if Chinese mining company Yanzhou Coal follows through with its expected takeover bid for Felix.

The pair, who were valued at a combined $672 million on BRW's Rich 200, hold about half of the company’s shares in conjunction with Felix’s largest shareholder, Hans Mende. Another investor, former QC Frank McAlary, will also pocket around $175 million if the deal goes through.

Could we see more takeovers involving Chinese companies? Quite possibly. Doug Rathbone’s chemical company Nufarm was recently approached by China’s Sinochem about a potential deal and Andrew Forrest’s Fortescue Metals has long been tipped as a possible takeover target. Watch this space.

Buying spree

The last week has also seen a spate of acquisitions by wealthy entrepreneurs. Rathbone (who is worth around $592 million) led the way, with Nufarm buying two US-based sorghum companies for an undisclosed price.

Gary Cohen, chief executive of healthcare software provider iSOFT, bought a US-based software developer called BridgeForward for $18 million. Cohen’s stake is worth $55 million.

Finally, Sonic Healthcare chief executive Colin Goldschmidt (who has a stake worth around $3.8 million) acquired two US pathology laboratories for a total of $27 million.

The common link here is the US. Given the state of the economy there, asset prices have obviously come down, and the strengthening of the Australian dollar has bought acquisition costs down even further. It could well be the perfect time to establish a foothold in the world’s biggest market.

Floating back to the top

Investment bankers are hoping for a steady stream of floats over the next 12 months, now that investors appear to be willing to support IPOs and capital raisings.

The first float up for consideration will be, which will be valued at around $800 million once it lists. That will value the 16 per cent stake of chairman Wal Pisciotta at about $128 million, while chief executive Greg Roebuck’s 4.5 per cent stake will be worth around $36 million.

The second big float will be Myer, which is part-owned by the Myer family. The price of this float is still unknown, but it’s likely that the family and other shareholders (including model Jennifer Hawkins) will do very nicely.

These floats are likely to encourage more wealthy entrepreneurs with private companies to examine a sharemarket listing. Many exit strategies have been put on hold by the downturn, and there will be some older entrepreneurs keen to cash out.

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