Sycom and Acucap may negotiate merger after approval

Sycom Property Fund may seek improved terms for its partnership with Acucap Properties, after Hyprop pulls out from Sycom entirely, and the merger would be subject to unit-holder’s approval.

The merged entity would have a market capitalisation in the same region as Hyprop Investments, Capital Property Fund and Resilient Property Income Fund. With an estimated market capitalisation of about R16.5bn, it would be well behind Growthpoint Properties and Redefine Properties but much bigger than other local listed funds.

In addition, it would be one of only six local listed property groups bigger than R10bn.

Analyst predicted that the potential merger of Acucap and Sycom, the portfolio of which is managed by Acucap, makes strategic sense.

This was despite mergers and acquisitions having become much more difficult to achieve in a highly competitive market.

Earlier this year, Sycom and its biggest unitholder, Hyprop, concluded an agreement that would see Hyprop exit its Sycom investment. The deal, subject to unitholder approval, would see Hyprop acquiring Somerset Mall from Sycom in exchange for the transfer of Sycom units held by Hyprop to Sycom.

Sycom CEO and Acucap MD Paul Theodosiou said last week the deal would pave the way for a possible merger, “which would give size and a bigger balance sheet”.

Grindrod Asset Management chief investment officer Ian Anderson said the “single biggest obstacle to a merger” — the Hyprop stake in Sycom — had been removed. Also, the new real estate investment trust legislation, which removes capital gains tax on listed property transactions, made mergers more viable.

However, “that doesn’t mean that all obstacles and all hurdles are removed”, Mr Anderson said, adding that the biggest obstacle would be competition from another listed property fund.

It had become more difficult for long-awaited mergers, including those between Octodec Investments and Premium Properties, and Acucap and Sycom, to be successful. This was because the property industry was characterised by “acquisitionhungry competitors”.

Redefine’s intended acquisition and effective merger with Fountainhead Property Trust was the most recent example — where tough competition from Growthpoint eventually saw both suitors withdrawing their offers.

Mr Anderson said it was unlikely that large, listed funds “will sit by idly and allow an Acucap to acquire Sycom” or vice versa. Another complication was that Acucap was a property loan stock company while Sycom was a property unit trust, and they therefore operated under different regulatory regimes.

But Mr Anderson said Acucap and Sycom had “similar portfolios” and, from a management perspective, “they are already managed as one”. Another “important” benefit was that the combined business would start moving onto the radar of foreign investors, who “typically only look at companies with market caps well in excess of R10bn — maybe even more than R15bn”.

Mr Anderson said Redefine’s recent Fountainhead experience was likely to be “an eye-opener for management”.