Aveo’s acquisition of the Freedom portfolio during the 2016 Financial Year allows the company to focus on strengthening Aveo’s support and care services. The move led to an adjustment to the expected financial contribution of the care provision services. The acquisition of the Freedom group solidifies Aveo as the leading and trusted owner, manager, and operator of retirement facilities across Australia. The company’s philosophy is underpinned to continue growing with older citizens through inspiring better living choices (Hutchinson par. 4). However, Aveo was notified of an opportunity to acquire Freedom privately.
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The mode of acquisition points to the possibility that Freedom used the White Knight defense mechanism when it approached the Aveo group. The Aveo group was viewed as a less hostile acquirer and Freedom, the target, in this case, bought it out as a white knight to drive out the other more hostile interested parties to its portfolio. A white knight in mergers and acquisitions is a term used to refer to a friendlier acquirer of a targeted company to wade off a hostile takeover from a different organization.
When exploring the term ‘white knight’ within the financial terminology, it is important to mention that white knights can save the business by either acquiring it or negotiating better conditions of a takeover. White knights can take different forms, for example, a business owner that was planning to ransack a company may take the role of a CEO and guide the business towards change and improvement. On the other hand, hostile company takeovers do not usually work, so it is beneficial for a business to search for a ‘white knight’ to preserve what has already been achieved.
Comparison of Events
The class lessons on “mode of acquisitions”, as well as “valuation applications”, were illustrated in the events that led to as well as after the acquisition of the Freedom group. The Freedom Aged Care Pty Limited owns and runs over 1,000 units spread out in over 15 retirement communities across New South Wales, Queensland, as well as Tasmania (“Mulpha’s associate Aveo buys 15 retirement communities” par. 1). The firm also has 533 units in the pipeline being developed. The new upcoming development includes 387 units in five of the already existing fifteen villages; the other 146 units are located in a new village on Queensland’s Sunshine Coast. Freedom was acquired based on its balance, as at 30th June 2015 for close consideration of AUD 215.5 million on top of other acquisition costs that comprised of:
- An issue of AUD35.5 million of scrip AOG at AUD 2.98 for every single security. This also came with a cash payment of $10 million to the numerous vendors;
- Aveo assumed AUD88 million in debt that was owed to various lenders;
- The acquirer deferred an AUD34 million payment in present value terms so long as several performance conditions are met post-completion over four years (Petitt and Kenneth 44).
Some several tools and methods can be employed in assessing a target company. In the case of Aveo acquiring Freedom, the Price-Earnings ratio, or O/E ratio was employed (Vadapalli 84). With the use of such a ratio, the acquirer comes up with an offer that is a defined multiple of the target company’s earnings (Rezaee 64). Examining the P/E for all stocks that are within a similar industry group provides the acquirer with a reliable guideline on what the P/E multiple of the target company ought to be (Ray 78). The valuation takes into consideration all the target company’s assets and liabilities.
Hutchinson, Samantha. “Aveo boosts reach with $300m Freedom Aged Care portfolio.” The Weekend Australian. Web.
“Mulpha’s associate Aveo buys 15 retirement communities” The Weekend Australian. 2016. Web.
Petitt, Barbara, and Kenneth R. Ferris. Valuation for Mergers and Acquisitions. Upper Saddle River, New Jersey: FT Press 2013. Print.
Ray, Kamal G. Mergers and Acquisitions: Strategy, Valuation, and Integration. New Delhi: Prentice Hall of India, 2010. Print.
Rezaee, Zabihollah. Financial Services Firms: Governance, Regulations, Valuations, Mergers, and Acquisitions. Hoboken, N.J: Wiley, 2011. Print.
Vadapalli, Ravindhar. Mergers Acquisitions and Business Valuation. New Delhi: Excel Books, 2007. Print.