Here’s what private equity may be getting right
A RECENT offer by private equity (PE) group EQT for property listings website operator PropertyGuru Group might have some wondering just what EQT sees in the loss-making company.
Has the public market undervalued the potential PropertyGuru holds? Perhaps; but it’s also possible that potential may only be accessible through PE ownership.
PropertyGuru listed on the New York Stock Exchange in 2022 via a merger with special purpose acquisition company Bridgetown 2 Holdings that gave the former an equity value of US$1.78 billion.
The stock ended its first day of trading down 1.7 per cent from an opening of US$8.61, and continued to decline to an all-time low of US$3.17 in February this year.
EQT is offering US$6.70 per share, or a total of US$1.1 billion, for PropertyGuru. This works out to a premium of 52 per cent to PropertyGuru’s closing price on May 21, 2024 – the last unaffected trading day prior to media speculation regarding a potential transaction.
The price is also a 75 per cent and 86 per cent premium, respectively, to its 30-day and 90-day volume-weighted average share price for the period ending May 21, 2024.
Last year, PropertyGuru reported a 10.5 per cent increase in revenue to S$150.1 million. This was mostly driven by a 24.2 per cent increase in revenue, to S$86 million, from its Singapore online property marketplace.
It reported a net loss of S$15.3 million, which was an improvement from the loss of S$129.2 million reported for 2022.
In the first quarter of this year, revenue increased 12 per cent to S$37 million. Its loss narrowed to S$6 million, from S$10 million in the year-ago period. The company is due to report its Q2 results on Sep 4.
These improving financials suggest a cost consciousness that bodes well for shareholders, yet the stock has struggled to win an investor following. EQT has thus secured a discount that gives it a better chance of making money on a sale in the future.
It could, meanwhile, continue to cut expenses, find efficiencies or add more businesses to PropertyGuru’s portfolio – maybe even loading debt on the company to do so.
None of these value-creating initiatives are beyond the abilities of management, neither are they certain to succeed.
In its favour, however, EQT has a controlling position that makes it easier to push for change and hold management to account – something not possible with disparate public ownership.
Institutional investors such as public equity fund managers and pension funds may engage with boards to try and exercise some influence over management decisions, but this level of engagement is much less than what PE fund managers typically enjoy.
PE-controlled boards, industry players say, are also more hands-on, tend to have highly relevant expertise and are both bolder and more innovative.
Not everyone likes the changes that take place when PE money acquires control. PE owners have been accused of putting people out of work, squeezing consumers and pushing companies to a breaking point.
There is, nevertheless, some argument to be made for stronger boards – filled with experienced and entrepreneurial individuals who can devote time and wisdom to helping companies refine their strategies and implement them.
