Big Week, page-48

Lone Star Funds joins battle for Aveo Group
By Sarah Thompson and Anthony Macdonald
Feb 22, 2019 — 12.15am

Global special situations and deep value investor Lone Star Funds is working on a binding offer for listed retirement village owner Aveo Group.

Street Talk understands Lone Star submitted an indicative and non-binding bid for Aveo Group last month, as part of the auction being run by Bank of America Merrill Lynch.

The indicative bid is expected to be good enough to see Lone Star sent through to the auction's second and final round, which is scheduled to kick off next week.

Lone Star Funds is a big global investment management firm, which has raised funds worth $US71.1 billion ($99.2 billion) over the past 20-years. The US-headquartered firm has stepped up its hunt for Australian and ASX-listed acquisitions in recent years, and has former Fortress Investment Group dealmaker Jason Howesscouting for opportunities.

Lone Star last year acquired ASX-listed Sino Gas & Energy Holdings in a $530 million deal and was an underbidder for Astro Japan Property Group which was snapped up by Blackstone in 2017.

Its interest in Aveo is intriguing. Lone Star has historically specialised in distressed debt and special situations investments, targeting capital constrained companies.

Aveo hired BAML to run a strategic review of its retirement portfolio and operations in the second half of last year and launched an auction.

Indicative bids were received in late January, including offers from some bidders who were "interested in a whole of company transaction" as Aveo told shareholders when announcing its half-year profit result on February 13.

Potential bidders told this column they expect to get the formal wave through to the auction's second round on Friday, with the data room to open early next week.

Lone Star is understood to be up against Blackstone and Cerberus Capital Management. Canada's Brookfield dropped out earlier in the process, sources said.

It is understood Blackstone has hired investment bank UBS for advice - reuniting a partnership last seen when the big American institution missed out on the listed Investa Office Fund last year.

Other investment banks, including JPMorgan and Credit Suisse, are believed to be seeking advisory roles and are likely to pop up in funding syndicates.

Aveo shares have been trading at about $2 each in recent weeks, valuing the company's equity at $1.2 billion. The company also had $707.9 million net debt at December 31, which means any suitor would likely need to stump up more than $2 billion for the company including debt.

Aveo's biggest shareholder Mulpha Group is understood to be supportive of the strategic review and potential for a takeover bid. It's also seen as a possible buyer.