Despite owning a good basket of assets and trading below its sum of the parts valuation, Long4Life has not been a great investment for those who backed entrepreneur and deal-maker Brian Joffe by investing at 500c a share at its listing in 2017.
The recent hint of corporate action has ignited the share price, with the company saying it had received an "unsolicited expression of interest relating to the acquisition of all of the issued shares in the company".
Though the share price is up more than 70% year to date, those who backed the company (including Joffe) from the beginning have experienced less spectacular performance.
After founding Bidvest in 1988 and building it into a global empire with many diversified moving parts, Joffe stepped down in 2016.
Being too active for retirement he invested R100m of his own money into Long4Life. The group’s listing on the JSE presented a second "bite of the apple" for those who missed an early investment into Bidvest, with an opportunity to invest alongside him again and benefit from his deal-making skills. With the potential of a buyout and possible delisting, however, shareholders may not get the compounding benefit that initial Bidvest investors got.
Ignoring the underperformance of the share, Long4Life has been successful in attracting and investing in some quality businesses across sectors such as sports and recreation, beverages and personal care and wellness (though judging by the high goodwill number on the balance sheet it may be deemed to have initially overpaid for some of these assets by betting on a long-term return).
These sectors house great brands such as Sportmans Warehouse, Outdoor Warehouse, Chill Beverages (with Score Energy drink and Fitch & Leeds), Inhle (beverage products for private label), Sorbet (a beauty therapy hub with more than 200 stores), and Clayton Care Group (Medical Rehabilitation), among others.
The writing was on the wall that the directors had had enough of the value the market was ascribing to its shares relative to the perceived underlying value of the portfolio of businesses it had invested in when in June they released a statement regarding the outcome of an Investec corporate finance driven review of its corporate structure and focus, with the aim of unlocking shareholder value.
This review, which included engaging with some of its largest shareholders, resulted in Long4Life concluding that the optimal structure in the medium term would be to unbundle the sport and recreation assets to form the basis of a focused niche retail business, and then bolstering this with suitable acquisitions. As far as nonretail assets, the review concluded that as these are quality assets with long-term growth potential, the group should make further investments in them.
This is all good and well but the implementation of the review may be up in the air as at the beginning of November the company released a cautionary via the JSE news wire (SENS) saying the company was engaging with a potential buyer after receiving an "unsolicited expression of interest" which may lead to a complete buy-out and delisting of the group. This would add to the growing list of companies exiting the listed environment and prevent long-term share investors from benefiting from growth opportunities.
Judging from the surprisingly good set of interim results released for the six months ended August, the group is financially strong with good cash and liquidity levels (with a cash balance of R667m). It is easy to understand management’s (and long-term shareholders’) frustration with the underperformance of its share price. Even using the most rudimentary analysis to calculate a valuation by summing up the parts of Long4Life, it’s no stretch to arrive at a value that exceeds current market capitalisation.
So one can understand the expression of interest from a potential buyer who at the right price will not only snap up some quality assets but will also get the added benefit of any growth of the various assets as their trading environments normalise post-Covid.
It will be interesting to see what price a buyer will offer, should one arise from the current talks, as shareholders may have their eye on the current net asset value (NAV) of 727c a share, which implies a cheque close to R5bn will need to be written for the whole business to spark the interest of long suffering shareholders. The NAV is, however, stuffed with goodwill and intangible assets and its tangible NAV is 243c a share.
A suitor may view the goodwill as a reflection of Long4Life initially overpaying for some of its assets and not wish to compensate for the full number. Time will tell.
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