Long4Life’s Brian Joffe blames pricey valuations for drop in buyouts
Valuations of target companies remain expensive despite the weak macroeconomic environment, says Brian Joffe, CEO of deal-hungry investment group Long4Life.
Joffe, who founded Bidvest and Bidcorp, has been on the hunt for acquisitions since his latest venture raised R2bn from the sale of shares when it listed in April 2017.
But a major deal — the mooted R3.9bn acquisition of footwear and clothing retailer Rage — recently fell through after investors complained Long4Life would have been forking out too much for the asset.
Joffe said on Wednesday that Rage was a fast-growing business, but "its cash conversion was just too low" for his company. The failed transaction cost Long4Life R3.6m.
He said acquisitions were "a slow process", partly because valuations had not normalised despite the weak economy.
Since listing, Long4Life has spent R3.4bn on deals, which meant it was "only about half invested", Joffe said.
Its recent acquisitions include Holdsport’s Sportsmans Warehouse, Outdoor Warehouse and Performance Brands, as well as Sorbet, Inhle Beverages and Chill Beverages.
Joffe said these were not bought at "bargain prices", but the deals were necessary to build a base for the group.
The company had net cash on its books of R929m at the end of August as well as unused debt facilities. Joffe said there was "no merit" in funding deals with equity at present because the group was trading at a discount to net asset value of over 20%.
Meanwhile, Long4Life saw opportunities for consolidation in the personal care and wellness industry, he said.
On September 1, the company acquired an effective stake of 36% in ClaytonCare Healthcare Group for an undisclosed sum, giving it an interest in 80 licensed beds. ClaytonCare is a subacute rehabilitation medical group that provides inpatient treatment and care.
Long4Life on Wednesday reported revenue of R1.5bn and trading profits of R178m for the six months to end-August.
This was "satisfactory" but "not a perfect result", said Joffe, who expected a better second half as the business is largely seasonal. The group said it would not pay interim dividends for the time being.
Cobus Loubser, Holdsport’s finance chief, said retail price inflation in Long4Life’s sports and recreation division fell to just 0.6% in the six-month period, from 6.6% a year before.