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HMC Capital looks to mirror healthcare sector success with property focus in 2024

HMC Capital has demonstrated how effective its active engagement strategy is with the success of the Sigma/Chemist Warehouse merger. Now David Di Pilla and his team have their sights set firmly on the real estate sector.

When news broke that HMC Capital engineered the merger of portfolio company Sigma Healthcare with distributer Chemist Warehouse Group in December, it was touted as the biggest M&A story of the year and sparked a ~50 per cent increase in the Sigma stock price.

The deal, driven by HMC founder David Di Pilla and Chemist Warehouse founders Jack Gance and Mario Verrocchi, also gave the HMC Capital Partners Fund an (as yet unrealised) 70 per cent return on its stake in Sigma, and was a major contributor to the flagship fund posting a 27.4 per cent gain since inception 18 months ago.

Upon completion of the merger, HMC will have a ~3 per cent stake in a full-service wholesaler, distributor and retail pharmacy franchisor with EBIT of about $500 million p/a, another $60 million p/a of unrealised synergies to develop and designs on replicating its domestic capabilities on a global scale.

  • With the team’s pro-active investment strategy reaping dividends, HMC is now looking to replicate that success across its other major investment plank. While 39 per cent of the fund is dedicated to healthcare, 57 per cent of its assets are in the real estate sector. These two core holdings, Lendlease Group and Ingenia Communities Group, are both seen as ripe for HMC to deploy strategic directives that will unlock and improve long-term shareholder return.

    “Having catalysed two major events for Sigma Healthcare during the year, our focus in 2024 will remain on delivering similar outcomes for our other portfolio companies Lendlease and Ingenia Communities,” explained HMC managing director Victoria Hardie (pictured) in HMC’s December quarterly investor update. “The Fund expects to deploy into further opportunities in 2024 as attractive opportunities emerge across the market.”

    Indeeed, HMC’s active engagement strategy is already working at LendLease, with the “underperforming” icon agreeing to slim down its enterprise as per guidance in a HMC whitepaper published in August.

    “In early December, the company announced it had entered into an agreement to sell 12 Australian master-planned communities projects to Stockland for $1.3bn,” Hardie stated. “The announcement is a further demonstration of the Fund’s active engagement strategy in action, as the sale of Communities was one of the key recommendations the Fund stated publicly…”

    The transaction is significant, not just because it signals a beneficial synergy between LendLease and HMC, but because it will reduce gearing by ~5 per cent and allow the real estate giant to reweight capital back to core investments.

    “We will continue to pro-actively engage with Lendlease management and Board, and we are confident they have embraced our additional strategic recommendations including exiting other non-core assets including retirement living, Ardor Gardens in China and Military Housing,” Hardie stated. “We retain our high conviction view on the value potential in Lendlease over the medium term as a more focused, capital light group.”

    HMC takes a similar view with Ingenia Communities Group, a developer and operator of land lease communities and holiday parks it has accumulated a 7 per cent stake in. The land lease sector is operates is exposed to strong tailwinds given it caters to the ageing population. As with LendLease, HMC has applied its active engagement strategy and formulated a plan for the company to increase shareholder value.

    “We have communicated our views on the optimal future strategy for the company to the Ingenia Board, and believe there is an opportunity to deliver significant value upside for shareholders as a more focused business,” Hardie stated. “Ingenia holds one of the largest pipelines in the Australian land lease sector of new communities and expansions, providing an embedded path to continued growth in earnings in this segment.”

    Tahn Sharpe

    Tahn is managing editor across The Inside Network's three publications.

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