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In this transaction, ASX listed Sigma acquired Chemist Warehouse (an unlisted company) via a scheme of arrangement in exchange for Sigma scrip and cash. The transaction was a reverse takeover and alternative method for CW to come to market, which resulted in existing Chemist Warehouse shareholders receiving approximately $700 million in cash and obtaining an 85.75% stake in the listed entity (which has been described as the largest placement in ASX history). The transaction is expected to unlock synergies of approximately $60 million per annum, and created a leading healthcare wholesaler, distributer and retail pharmacy franchisor with a market capitalisation of more than $34 billion.¹

Further information on the background to this transaction, reverse takeovers and ‘backdoor listings’ can be obtained by reading our 2023 ECM Review.

As we noted in that review, the reverse takeover has become a relatively uncommon mechanism to achieve an ASX listing, so the Chemist Warehouse transaction is notable not just for its size but the novel way that Chemist Warehouse has come to market.

Unique challenges

2024 saw both approval of the transaction from the ACCC as well as despatch of disclosure documents, comprising a scheme booklet for Chemist Warehouse shareholders, a notice of meeting for Sigma shareholders and a prospectus, the latter being a requirement imposed by ASX in connection with the transaction.

The preparation of three disclosure documents, all of which required content from both Chemist Warehouse and Sigma and needed to be consistent, presented some unique challenges. This was particularly so given the competition overlay. Until implementation, Chemist Warehouse and Sigma were competitors and as such the sharing of information and discussions about future plans needed to be carefully managed or could not occur. This created a tension with the normal drafting process and content requirements.

This was part of the reason why no forecast was included in the disclosure documents, and instead some qualitative disclosure on prospects was provided (the other reason being the difficulty in reliably forecasting the financial performance of a combined business with no trading history) along with estimated synergies from the tie up (this being a point of interest for ASIC during engagement on the disclosure documents). Whilst not having a forecast is commonplace in M&A transactions (including those offering scrip consideration), it is highly unusual where an IPO style prospectus is involved and the listed company is of the nature of the combined group.

The normal approach to due diligence and the operation of due diligence committees also required revisiting given the multiple disclosure documents and parties involved, with the approach taken of running one core due diligence process for the common disclosures, with subsidiary due diligence committees considering disclosure issues specific to a particular disclosure document. Similarly, escrow arrangements, the likelihood of index inclusion and possible selldown intentions of the large number of non-escrowed CW shareholders presented novel issues which required detailed consideration.

The transaction also presented complex issues on an M&A front – including the ACCC approval process, the timeline that this dictated for the deal (impacting the approach taken to drafting the merger implementation agreement), the involvement of two independent experts (one opining on the transaction for Chemist Warehouse shareholders and the other opining on related party arrangements for Sigma shareholders) and issues related to alignment of balance dates (the combination of Sigma and CW reporting to different year ends and the interaction of the accounting rules with the Corporations Act necessitating some novel ASIC and ASX relief).

Finally, the transaction also broke new ground in terms of the scope of related party arrangements in place for a listed entity. Whilst early media speculation was that the transaction may lead to a ‘governance Frankenstein’, there was an overwhelmingly positive response from the market (including proxy advisors) on seeing the proposed governance arrangements to deal with related party governance issues and we expect the transaction to establish a high water mark for related party governance frameworks going forward.

The IPO of DigiCo Infrastructure REIT involved HMC Capital Limited acquiring 13 data centre assets in Australia and the United States as part of the IPO. On its listing, DigiCo REIT became the diversified owner, operator, and developer of these assets, with an enterprise value of $4.3 billion. Due to significant demand from institutional and retail investors, the underwritten IPO achieved a raise of $1.9 billion and a market capitalisation of $2.4 billion on admission to the Official List of the ASX, the largest IPO by capital raise on ASX since 2018.

Entities seeking to list on the ASX are typically established businesses. This is particularly true for large IPOs. However, as DigiCo REIT was newly established and a significant proportion of the IPO proceeds were used to acquire its assets, there were several interesting issues that arose in the IPO:

• Timing – MC Capital lodged the disclosure document with ASIC approximately two months after beginning the IPO process, a remarkably short timeframe given the scale and complexity of the transaction.
• Placement – In parallel with the IPO process, HMC Capital conducted a $300 million institutional placement to fund certain pre-IPO costs of establishing DigiCo REIT (including to underwrite the acquisition of Global Switch Australia). The capital raising required the deal team to balance competing considerations, including HMC Capital’s continuous disclosure obligations, the pre-prospectus/PDS publicity restrictions and the need to ensure HMC Capital shareholders were investing on the understanding that the relevant assets were being acquired to form part of DigiCo REIT rather than for the purpose of being held by HMC Capital.
• Pre-IPO disclosure – DigiCo REIT did not have an operating history or statutory historical financial accounts. As such, we had to consider the appropriate historical financial information both for the disclosure document and for pre-quotation disclosure purposes.
• Corporate governance – DigiCo REIT is a stapled group comprising shares in a company and units in a managed investment scheme. The managed investment scheme has an external responsible entity (being Equity Trustees). This structure required HMC Capital and Equity Trustees to collaborate in the design of a bespoke corporate governance framework as well as policies and procedures to govern the interaction between Equity Trustees and the corporate side of the stapled group.
• FIRB – The acquisition of Global Switch Australia (the largest asset acquired by DigiCo REIT in connection with the IPO) required a non-traditional FIRB approval whereby the vendor was required to obtain FIRB approval in connection with the disposal of the asset. FIRB approval was obtained after the disclosure document was lodged with ASIC. To accommodate this, the disclosure document disclosure needed to balance the fact that the timing of completion of the Global Switch Australia acquisition was uncertain while still presenting a clear picture of what the combined DigiCo REIT business was expected to look like once FIRB approval was obtained (which ultimately occurred shortly after listing).
• Regulator engagement – The IPO required a number of regulatory waivers and confirmations, including a waiver such that HMC Capital did not require shareholder approval under Listing Rule 11.4 in respect of the data centre assets that were acquired on behalf of DigiCo REIT, and a confirmation that ASX mandatory escrow would not apply.