Fairweather investors those private equity, masters of the universe types.
At the first whiff of weak markets, a sell-off, a bit of volatility, or some dislocation – the sort of events company management and board tackle every day, the private equity types bolt for the sidelines, dropping deals to save their investors cash (more likely protect their fat fees).
And so it is with the collapse of the proposed $872 million takeover offer of engineering group Bradken.
In a statement to the ASX yesterday, Bradken said recent volatility in commodity and financing markets meant the private equity consortium of Pacific Equity partners and Bain Capital had been unable to finance the deal on acceptable terms.
Bradken says it will now focus on returning to profitable growth through cost cutting and the contribution of its recent foundry acquisition in India.
Naturally Bradken shares fell sharply – losing 37% with the disappearance of the private equity nervous nellies. The shares ended the day down almost 36% on $2.64.
BKN 1Y – Bradken shares tumble as private equity pulls the pin
The reason for the abandonment of the attempted bid/buyout – the mining downturn – especially in iron ore.
That seems a poor excuse, given that the iron ore price was already very weak in early December, having fallen close to 40% by then. It is down another 12% so far this month) when the first approach from the masters of the universe was revealed.
On Wednesday Bradken told the ASX:
"The Board has been informed that the Consortium concluded confirmatory diligence to its satisfaction, however despite the Company and Consortium working constructively to enable development of its Proposal, the recent volatility in global commodity and financing markets has impacted the Consortium’s ability to obtain financing on terms acceptable to the Consortium.
"As a result, the Consortium has now informed the Board that it is not in a position to make a binding proposal at this time. Consequently, Bradken and the Consortium have ceased all discussions in relation to the Proposal.
"Bradken will now concentrate on returning to profitable growth through initiatives recently announced including the acquisition of a foundry in India and Global Cost Reduction Capex Initiatives. The foundry will provide low cost manufacturing capacity in a location that has proximity to key customer markets in Australasia and Africa as well as a large domestic market in India.
"Bradken has also identified a number of fast-payback Capex initiatives that are designed to increase EBITDA and overall margins on existing volumes.
"The volatility in Bradken’s end markets has recently increased with further price declines in oil and iron ore. While Bradken remains well positioned to navigate through this volatility, there are no visible signs at this stage of a turnaround in the mining cycle. However tonnages mined for most metals, which is the key driver of demand for Bradken’s products, continue to increase.
"Bradken will continue to monitor the outlook and market conditions to ensure that the appropriate level of financial and operational flexibility is maintained.
"As previously advised to the market, Bradken will announce its results for the half year to 31 December 2014, including an update on the external environment and business prospects, on Tuesday, 10 February 2015.”
