One of the cruel jokes doing the rounds of the ASX in the past month or so concerned the fate of two very different deals: the float of Firmus Technologies and the $9.4 billion takeover of waste management giant Cleanaway by Swedish private equity giant EQT.
Before the Firmus IPO fell apart so spectacularly, one wag joked it was to be a case of garbage in, and garbage out.
Whatever you think of the merits of the Firmus float, it would have changed the make-up of the ASX. But the Cleanaway takeover, which was effectively confirmed on Monday, will do that too – yet another quality company will disappear from the local bourse, following a takeover defence that was so desultory that we had to wonder whether Cleanaway chair Samantha Hogg and her board were victims of Stockholm syndrome.
Such is capitalism, many will say. But after Monday, when we saw four separate deals that will probably result in four separate companies disappearing from the ASX, there’s surely a bigger story here.
Monday also brought confirmation that plumbing supplies company Reliance Worldwide will fall to a $4.1 billion bid from Canadian giant Brookfield – although at least chairman Russell Chenu had a month to try to shop the business to another suitor.
The third big bid of Monday was more of a surprise, although not a shock: Japanese insurance giant Daaichi Life wants to take out local annuities giant Challenger in a $7.8 billion deal.
Daiichi, which trades under the TAL brand in Australia, already owns 20.5 per cent of Challenger, and the Challenger camp always thought a bid for the remainder was coming.
When Daiichi bought its stake from Japan’s MS&AD Insurance Group Holdings and US private capital giant Apollo Global Management in June last year, Challenger tried to get Daiichi to put out a statement to the effect that it had no plans to bid for the rest.
Daiichi demurred, and then didn’t put a director on the Challenger board; safe to say the spidey senses of Challenger and its bankers were tingling.
By all accounts, relations between the sides are friendly, and it seems the only real question here is whether Challenger can squeeze a slightly higher bid out of Daiichi.
Before Monday’s bid, Challenger shares had surged 33 per cent since March, propelled by a share buyback, persistent takeover speculation, and the fact Challenger is now working under a new regulatory capital regime which makes it much more efficient for it to run its Australian annuities business.
It is no surprise that Daiichi wants to bid now; Challenger is in the very early innings of operating under the new regime, and starting to show the benefits of it. And it’s also no surprise that Challenger wants to push the premium on offer closer to 30 per cent – while keeping things friendly, of course.
Finally, salary packaging group Fleet Partners agreed to sell itself to local private equity giant Pacific Equity Partners for $1.1 billion, after a four-month process to sell the business to the highest bidder.
On their own, all of these deals look eminently sensible – these are companies that have, for big chunks of their recent lives, found themselves out of favour with ASX investors. Now they’re going. Too bad, so sad.
But we can add these four companies – of very different sizes, in very different industries – to a long list of quality firms that are now out of reach for the vast majority of Australian investors, and in the hands of a smaller group of large and mainly foreign investors.
Super and wealth group Insignia Financial, insurance broker Steadfast, logistics giant Qube and billboards group oOh!media are among other private equity buyouts this year, and several other companies such as Perpetual and IDP Education are fielding offers they probably won’t be able to refuse.
The incredible shrinking ASX matters because listed markets are democratic, accessible and still vital to the wealth-creation strategies of ordinary Australians; as my colleague Anthony Macdonald notes, households own 12.8 per cent of all shares in the ASX All Ordinaries and pension funds have another 30.2 per cent, according to JPMorgan’s data.
It matters because if Australia is to lift itself out of a period of tepid economic growth, strong listed markets will help fund the next generation of dynamic companies.
It even matters to the private equity firms opportunistically picking off our unloved public companies; listed markets remain a key way for them to exit their investments.