Ansell clears the barriers to the US market

The $US615 million ($671.6 million) acquisition of US glove maker BarrierSafe Solutions announced by Ansell today fits within its existing businesses and its strategy, well, like a glove.

Ansell’s chief executive, Magnus Nicolin, has made it clear that synergistic acquisitions that strengthen and deepen the group’s existing product portfolio are a key element of his growth strategy. BarrierSafe ticks a lot of boxes, even though the deal is considerably larger than the incremental acquisitions Nicolin has previously targeted.

BarrierSafe has market-leading positions in a number of single-use glove segments of the market in the US, segments in which Ansell itself has either modest positions or no presence at all. Together, the two businesses should have market shares above 20 per cent in most of those ‘verticals’, which Ansell said today it had long targeted. 

In its traditional condom and surgical categories there isn’t much scope for significant acquisitions, but Ansell has been looking to the far more fragmented industrial and specialty categories for growth. BarrierSafe is the biggest player in the industrial, dental, life sciences, auto aftermarket and emergency medical services segments of the single-use glove verticals.

BarrierSafe also manufactures and distributes protective footwear, giving Ansell a presence in a new category. BarrierSafe has a bigger distribution system than Ansell in the US, where it believes it has been under-represented.

The acquisition should deliver conventional cost synergies – Ansell says about $US10 million a year – mainly from combining and extracting efficiencies from the two supply chains. The combination also ought to generate revenue synergies over time from the broader product range and wider distribution footprint. Ansell will be able to sell BarrierSafe products into a much wider range of markets and geographies and vice-versa.

Adding BarrierSafe will lift the share of revenue Ansell generates from the key North American market from 31 per cent to 42 per cent. It is expected to be marginally dilutive if non-recurring transaction and integration costs are included, but to add to earnings per share by a low-to-mid single digit percentage figure in the 2015 financial year.

BarrierSafe has generated compound annual growth in revenues over the past six years or so of about 10 per cent, with earnings before interest, tax, depreciation and amortisation growing even faster.

It should represent about 17 per cent of the combined revenues for the expanded Ansell of about $US1.6 billion (it will contribute about $US280 million) and 22 per cent, or about $US57 million of the combined EBITDA of about $US255 million.

The acquisition is very material to Ansell but it says the acquisition multiple of about 9.7 times EBITDA (8.4 times after cost synergies) is consistent with those paid in its previous acquisitions and at the lower end of recent multiples paid in its sector.

The size of the deal has required an equity raising, with Ansell saying it has placed $338 million of its shares with institutions. It will raise a further $100 million or so through a share purchase plan. It has also arranged a $US300 million new debt facility.

Ansell is pursuing an accelerated growth strategy. Acquisitions are an important driver of its pursuit of greater scale and the synergies it provides.  It can also leverage off the acquisitions to add or strengthen its capabilities, products and geographies and to transfer its existing manufacturing and supply chain expertise.

BarrierSafe appears to fit Ansell’s own preconditions for an ideal acquisition perfectly. And, as the US slowly emerges from its post-financial crisis torpor, the timing also appears well-judged.