In the world of mergers and acquisitions there are deals that go easy and deals that go hard, and the amount of dollars involved is not a decisive factor, as the three-pronged battle for control of Warrnambool Cheese & Butter shows.
It is a middleweight acquisition regardless of whether Saputo of Canada, the Murray Goulburn co-operative or Bega Cheese triumphs, but it has levels of complexity that put larger deals in the shade.
The $US615 million ($671 million) takeover of US rubber glove maker, BarrierSafe Solutions International (BSSI), that Ansell unveiled on Tuesday is slightly larger, but should also be significantly simpler. Barring an unlikely intervention by the US government on competition grounds, the Australian company has found a business that goes hand in glove with what it already owns.
Ansell is buying BSSI from a consortium led by a US private equity outfit, Odyssey Investment Partners. Odyssey bought BSSI in 2011 from another US private equity consortium, and Ansell looked at BSSI when that auction was taking place.
The earnings multiple it is paying now is similar to one it baulked at in 2011 - 9.7 times BSSI's current earnings before interest, tax, depreciation and amortisation (EBITDA) of $US64 million, and 8.4 times EBITDA if synergies that Ansell chief executive Magnus Nicolin says will be running at $US10 million a year in two years' time are taken into account.
Ansell's own EBITDA multiple is higher, about 12.5 times, however, and it is buying a business that is more profitable than it was in 2011 after the sale of a low-margin food-handling glove business in May last year. BSSI's revenue has compounded at an average rate of about 10 per cent since 2007, and Ansell says EBITDA growth has outstripped revenue growth.
The Australian-based group is also buying a company that has leading market shares in segments of the US disposable glove market where Ansell is either a smaller player, or absent. They include industrial gloves, dental gloves, and life sciences including pharmaceutical research.
BSSI fills a geographical gap, too. Ansell is currently sourcing 42 per cent of its revenue from Europe, the Middle East and Africa (EMEA), 31 per cent from North America and 20 per cent from the Asia-Pacific. With BSSI added, North America's revenue share will be 42 per cent, ahead of EMEA at 35 per cent and the Asia-Pacific at 20 per cent.
Overlaps are what create potential rationalisation savings, and the fact that there aren't that many of them is evident in the relatively low target of $US10 million for cost savings (Nicolin says the combination should also deliver revenue gains, but that Ansell isn't relying on them in its takeover sums).
A flip-side, however, is that there should be no major competition law hurdle. Ansell will have a 20 per cent-plus market share in key disposable glove products, but its overall share of the North American glove market will be about 16 per cent - too low you would think to attract anything other than cursory regulatory interest.
Ansell's adviser is UBS, and it is playing the role that propelled it to prominence here: the investment bank has the capital market trifecta, as the M&A adviser to Ansell, the underwriter and arranger of a $338 million placement of shares that half-funds the acquisition, and the provider of $US300 million of bridging debt that funds the balance.
2014 grind awaits
Goldman Sachs head of economics, commodities and strategy research Tim Toohey is bearish about the Australian economy next year, and if he is right, the Australian dollar will head south without Reserve Bank intervention.
His team sees the S&P/ASX 200 share index at 5900 by the end of next year, but its 2 per cent GDP growth forecast for 2014 will, if correct, finger this economy as the odd one out in a developed world where growth is recovering.
Australia is in an "air pocket" between the fading mining investment boom and rising mine production from 2015 onwards, Toohey says, adding that the decline in Australia's terms of trade is only about half over. His team sees a decline in the iron price from current levels around $US136 a tonne to $80 a tonne by 2015 as the big weight.
It predicts that the Reserve Bank will cut its cash rate again next March and only lift it gradually from early 2015 onwards, and Toohey says that as northern hemisphere growth and interest rates edge higher the Australian dollar will follow the terms of trade down, to 88 US¢ in six months, and 85 US¢ in a year's time.
It could even slip below 80 US¢ if the "carry trade" from cheap money elsewhere evaporates, he says. Goldman sees Australia's economy bouncing back in 2016 and 2017, but on the Toohey scenario, 2014 will be a grind.
The Maiden family owns Ansell shares.