Private education group Advtech looks set for a showdown with its two biggest institutional shareholders over the funding structure for a proposed R450-million acquisition of smaller rival Maravest.
On Tuesday‚ Coronation Fund Managers and Kagiso Asset Management – which collectively have a 40% stake – confirmed they were likely to vote against the Maravest transaction.
The deal needs the support of 50% of Advtech’s shareholders at a general meeting next Wednesday.
Kagiso and Coronation have canvassed the support of other large Advtech shareholders‚ which include Old Mutual‚ Sanlam and the Public Investment Corporation. But at this stage it is uncertain whether there will be sufficient shareholder support to block the transaction.
Old Mutual looks likely to support the Maravest deal. Old Mutual Equities analyst Brian Pyle reckoned the Maravest acquisition was a good deal for Advtech. “We think it would be detrimental to Advtech if the deal did not go through.”
Advtech owns premium-priced education brands such as Crawford College and Trinity House‚ and also has interests in tertiary education and personnel placement. Maravest’s operating assets would complement Advtech’s top-end education offering and also offer an opportunity to extend into lower-fee schools.
Kagiso analyst Simon Anderssen said the biggest misgivings over the Maravest transaction were around new shares being equivalent to 13% of Advtech’s current shares in issue to fund the deal.
The issue price to Maravest’s vendors – the founding Van Niekerk family and private equity player RMB Corvest – was at a significant discount to Advtech’s fair value‚ he said.
Both Coronation and Kagiso estimate Advtech’s fair value at about R11 per share compared with an issue price of R8.02 per share for the Maravest transaction.
Coronation small-cap fund manager Alistair Lea described the funding arrangement as materially dilutive to existing shareholders. “We believe Advtech have enough capacity on their balance sheet to fund the entire Maravest deal in cash.”
Lea said it seemed likely that RMB Corvest would have preferred a cash settlement for its 40% shareholding in Maravest‚ noting that subsequent arrangements had seen the private equity company pledging its Advtech shares with fund management specialist Anchor Capital at 820c per share.
Anderssen contended that RMB Corvest was clearly not interested in being a long-term shareholder in Advtech. “Yet management have endorsed an agreement that clearly prejudices existing shareholders‚” he said.
He stressed that Kagiso had long argued with Advtech’s management that the company should run higher levels of gearing. “I don’t think they have explored alternative funding options for Maravest. Deal-specific debt should have been explored before resorting to issuing new shares.”
Advtech acting CEO Frank Thompson said suggestions that management should have explored alternative funding options lacked understanding of the group’s seasonal and investment cash-flows.
He believed neither of the two big shareholders had fully grasped the potential of the Maravest transaction – that the returns offered by Maravest would substantially outweigh the cost of capital. “I am glad to say the business is performing ahead of our expectations‚ and is earnings accretive in this year. Based on our forecasting we can be absolutely clear that the performance of Maravest will be ahead of the cost of capital.
“Maravest wanted to take their business to a listing. We spent a lot of time working to convince them of the benefits of coming to the market as part of Advtech‚ where they would get the benefit of shared risks and access to capital.” — BDLive
Shareholders try stop education deal
On Tuesday‚ Coronation Fund Managers and Kagiso Asset Management – which collectively have a 40% stake – confirmed they were likely to vote against the Maravest transaction.
The deal needs the support of 50% of Advtech’s shareholders at a general meeting next Wednesday.
Kagiso and Coronation have canvassed the support of other large Advtech shareholders‚ which include Old Mutual‚ Sanlam and the Public Investment Corporation. But at this stage it is uncertain whether there will be sufficient shareholder support to block the transaction.
Old Mutual looks likely to support the Maravest deal. Old Mutual Equities analyst Brian Pyle reckoned the Maravest acquisition was a good deal for Advtech. “We think it would be detrimental to Advtech if the deal did not go through.”
Advtech owns premium-priced education brands such as Crawford College and Trinity House‚ and also has interests in tertiary education and personnel placement. Maravest’s operating assets would complement Advtech’s top-end education offering and also offer an opportunity to extend into lower-fee schools.
Kagiso analyst Simon Anderssen said the biggest misgivings over the Maravest transaction were around new shares being equivalent to 13% of Advtech’s current shares in issue to fund the deal.
The issue price to Maravest’s vendors – the founding Van Niekerk family and private equity player RMB Corvest – was at a significant discount to Advtech’s fair value‚ he said.
Both Coronation and Kagiso estimate Advtech’s fair value at about R11 per share compared with an issue price of R8.02 per share for the Maravest transaction.
Coronation small-cap fund manager Alistair Lea described the funding arrangement as materially dilutive to existing shareholders. “We believe Advtech have enough capacity on their balance sheet to fund the entire Maravest deal in cash.”
Lea said it seemed likely that RMB Corvest would have preferred a cash settlement for its 40% shareholding in Maravest‚ noting that subsequent arrangements had seen the private equity company pledging its Advtech shares with fund management specialist Anchor Capital at 820c per share.
Anderssen contended that RMB Corvest was clearly not interested in being a long-term shareholder in Advtech. “Yet management have endorsed an agreement that clearly prejudices existing shareholders‚” he said.
He stressed that Kagiso had long argued with Advtech’s management that the company should run higher levels of gearing. “I don’t think they have explored alternative funding options for Maravest. Deal-specific debt should have been explored before resorting to issuing new shares.”
Advtech acting CEO Frank Thompson said suggestions that management should have explored alternative funding options lacked understanding of the group’s seasonal and investment cash-flows.
He believed neither of the two big shareholders had fully grasped the potential of the Maravest transaction – that the returns offered by Maravest would substantially outweigh the cost of capital. “I am glad to say the business is performing ahead of our expectations‚ and is earnings accretive in this year. Based on our forecasting we can be absolutely clear that the performance of Maravest will be ahead of the cost of capital.
“Maravest wanted to take their business to a listing. We spent a lot of time working to convince them of the benefits of coming to the market as part of Advtech‚ where they would get the benefit of shared risks and access to capital.” — BDLive
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