Acquisition of Aveo Group by Brookfield

By Gleb Kuznetsov (University of Queensland)


Overview of the deal

Acquirer: Brookfield Property Partners

Target: Aveo Group

Implied Equity Value: AU$1,243 mm bid

Total Transaction Size: AU$2,067 mm enterprise value

Closed date: 29/11/2019

Target advisor: Bank of America

After announcing a transition to focusing solely on retirement villages in 2013, Aveo generated strong growth and achieved targets until FY18. In June 2017 a Fairfax Media report into alleged malpractices at Aveo triggered public ire at the company and the retirement industry at large – resulting in a substantial decrease in demand. In September 2017, a Class Action was launched against Aveo, and the ACCC (Australian Competition and Consumer Commission) announced an investigation into Aveo. In September 2018, a Royal Commission into Aged Care was announced, adding additional uncertainty amongst stakeholders.

This coincided with the devaluation of Aveo’s portfolio following a downturn in the Australian residential real estate market. The provision of a ‘buy-back’ clause in its contracts saw numbers of units that had to be repurchased skyrocket (at a relatively high price), whilst the increased scope of newly developed units could not be filled. At the time of its last annual report, June 30th 2019, Aveo had AUD 756 mm locked up in buy-back and development stock whilst its gearing ratio was at the 30% covenant level and interest coverage and LVR were approaching covenant levels.

After Aveo began looking for a potential take-over in November 2018, Brookfield were reportedly the last interested investors prior to launching an uncontested offer of $2.195 per share on February 12th, 2019. The interest from Brookfield came only a month after it completed the acquisition of Australian Healthscope for AU$4 bn, highlighting a growing interest in the Australian market. The consideration consisted of a $2.15 offering per share in addition to a 4.5c dividend to be paid. A Scrip Consideration was also provided. Mulpha International BHD, a major stakeholder in Aveo since the early 2000s controlling 24.4%, was unwilling to fully part with Aveo and retained a 15.5% stake. Brookfield also retained many of Aveo’s experienced management team.

The offer came at a ~28% premium to the undisturbed closing security price of $1.71 as of February 12, 2019, with a targeted 100% take-over. It was unanimously approved and endorsed by the board before being accepted on August 14th, 2019. Brookfield financed the acquisition using self- and co-investor equity, as well as AU$1.04 bn of third party debt from a syndicate of ANZ, Bank of China and Barclays (AU$787.5 mm term loan and revolving facilities worth AU$254 mm).

Company Details

Acquirer: Brookfield Property Partners

Brookfield Property Group (NASDAQ: BPY), a subsidiary of the Canadian alternative asset management firm Brookfield, is a real estate firm that holds a global portfolio across a diverse range of real estate asset classes. It has over US$500 bn AUM.

Foundation and Headquarters: Founded in 2013 with headquarters in Hamilton, Bermuda

CEO: Brian Kingston

Market Cap: US $3,855mm

Enterprise Value: US $93,665 mm

LTM Revenue: US $10,172 mm

LTM EV/Revenue: 9.2x