Digital property settlements group PEXA is expected to list on the Australian Securities Exchange in a $3.3 billon float by the end of June after its biggest shareholder, the Link Group, backed an initial public offering over a cash sale.
PEXA’s second biggest shareholder, Morgan Stanley Infrastructure Partners, which owns 40 per cent, confirmed it had executed an underwriting agreement to sell all of its stake as part of a float underwritten by four banks.
A snap bookbuild on Friday evening attracted dozens of investors and PEXA’s board agreed over the weekend to pursue an IPO priced at $17.13 per share, as reported by The Australian Financial Review’s Street Talk column on Saturday.
The planned float scuppers a $3.1 billion bid from private equity group KKR and online real estate company Domain Group, which was made on Thursday and expired at 5pm on Sunday. Nine, publisher of the Financial Review, is a majority shareholder in Domain.
The bid from KKR and Domain would have allowed Link, which owns 44.2 per cent of PEXA, to accept cash for all of its shares.
It is understood KKR, Domain and other potential bidders, which included Canada’s Dye & Durham, have been told the trade sale process – which was being run alongside another process exploring a potential IPO – has been terminated.
The move to float has won the support of some of Link’s key shareholders, including Yarra Capital Management with a 6.8 per cent stake, that are keen to participate in PEXA’s future growth.
Yarra executive chairman Dion Hershan said given the price on the table had been similar in both the sale and IPO tracks, Yarra – which participated in the PEXA bookbuild – preferred the IPO.
“This is a digital, scalable business with a dominant market position,” Mr Hershan told the Financial Review. “It’s a high quality business on any measure.”
But other Link shareholders are lukewarm about the decision to float.
“We would have rather them take cash, pay down some debt and give themselves some firepower to work on the core business,” one institutional investor said.
“I don’t see how increasing your stake in PEXA at 30 times EBITDA is unlocking value on behalf of shareholders.”
Link’s share price, which was trading at $4.79 12 months ago, closed at $5.45 on Friday. The IPO will value PEXA at 30.6-times forecast EBITDA for the 2021-22 fiscal year.
Private equity groups Carlyle and Pacific Equity Partners made an indicative offer of $5.20 per share for Link in October, and later raised it to $5.40, but withdrew it after higher offers emerged.
Link chief executive Vivek Bhatia said in April that the group had an “open mind” on whether a trade sale or an IPO was the best option.
A prospectus for the PEXA float is expected to be released in mid-June.
Link’s third biggest shareholder, Commonwealth Bank of Australia, will increase its holdings from around 15 per cent to above 17 per cent as part of the IPO while Link’s holdings will also rise slightly.
PEXA, which generates fees from managing transfers, mortgages and discharging of mortgages across Victoria, NSW, Queensland, SA and WA, has been the fastest growing part of Link’s business.
Its electronic conveyancing platform handles more than 80 per cent of all property transactions in Australia. The group wants to be at the forefront of a similar modernisation of systems in Britain, New Zealand and Canada.
It is preparing to set up in Britain to try to emulate the big shift to digital conveyancing which it pioneered in Australia and is in active conversations with several lenders in the UK.
PEXA signed an agreement with global software consultancy ThoughtWorks in late April to help it expand in Britain.
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