Can Public Investors Grab a deal with The Good Guys?
The Good Guys is reportedly on the market (again), but we wonder how much value is on offer for public investors?
Australia’s Electronics Market is dominated by JB Hi-Fi (ASX: JBH) and Harvey Norman (ASX: HVN), but the collapse of Dick Smith has left The Good Guys as the last remaining player of substantial scale. The Good Guys has around 100 stores across the country, and while the group is owned by the Muir family around half of the stores are joint venture partnerships. At this stage, the most likely avenues for the owners to realise their investment are a trade sale or IPO.
JB Hi-Fi and Harvey Norman are keen to bid for The Good Guys if a trade sale is viable, but the ACCC is watching closely. If the ACCC prohibits a bid on competition concerns, this opens the door for other players like Poco or Private Equity to quickly gain scale in Australia, which may not bode well for the incumbents.
If the ACCC allows JB Hi-Fi and Harvey Norman to bid, we wonder what premium they would be compelled to pay? The prospect of securing the last major competitor in the market may cause bidding to go beyond the synergies afforded to the player with the largest scale.
A float would likely require a buy out of the joint owners, with an even greater premium then sought from the market. The recent collapse of Dick Smith would temper the potential premium, but we wonder how much cash would be left on the table for a mature retailer challenged by price deflation with an industry transitioning online?
The likelihood of public investors benefiting from this sales process, by either investing in the incumbents or directly in the IPO, appears low. Having fielded multiple bids over numerous years, the owners would have a pretty good understanding of how to maximise the final sales price, but whether a Good Buy present for our investors remains to be seen. We are watching closely, but cautiously.
Ben MacNevin is an Analyst with Montgomery Investment Management. To invest with Montgomery domestically and globally, find out more.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.INVEST WITH MONTGOMERY
Nothing yet Bruce
any comments on Kogan float?