InvoCare enters corporate purgatory as $1.8 billion bid fizzles out

Death is a lucrative business – the industry is largely recession proof, has reliable demographics and a captive market. So, it’s no surprise that the $1.8 billion battle for ownership of Australia’s biggest operator of funerals and private cemeteries, InvoCare, has now become tactical.

Private equity group TPG had been stalking InvoCare – which runs national brands White Lady Funerals and Simplicity Funerals – and a host of state-based brands for some time, pouncing last month with an offer that was 40 per cent above InvoCare’s share price.

InvoCare’s shareholders didn’t get a chance to consider whether TPG’s offer was opportunistic or compelling. It was never formally put to them for a vote because the board deemed the offer didn’t represent a full-value proposition.

The funeral services provider is now in corporate ownership purgatory. TPG has amassed a near-20 per cent stake and appears to have engaged in a strategic retreat, but it hasn’t declared defeat. Instead, it has requested a seat on the InvoCare board – a signal that it isn’t going away.

InvoCare’s board, which did not allow TPG access to get a full or exclusive look at its books, is rolling the dice. Presumably it is taking a bet that another interested party might be lured into a bidding war with TPG and force up the offer price. This behaviour is straight from the takeover operating manual.

However, the pitfall in InvoCare’s defence is that TPG, with its 19.9 per cent stake, has become the gatekeeper for any other would-be interested parties.

The fact that TPG was able to wade into the market and pick up this foundational stake suggests many shareholders had lost patience with InvoCare and were happy to sell.

TPG’s offer was branded opportunistic by InvoCare’s management because it seized on the weakness in the takeover target’s share price on the back of a set of disappointing results, released in February.

While full-year operating revenue grew 12 per cent, InvoCare said at the time that its overall numbers had been “tempered by costs incurred to service, where possible, the above-average demand without compromising standards of care. Increased costs also resulted from labour constraints driving increased overtime and the use of third parties for transfer services.”