Recall looks for acquisitions as paper trail remains valid: chief
Recall Holdings chief executive Doug Pertz says the company will hunt for acquisitions to drive earnings growth after the document management business was spun out of parent Brambles.
Despite concerns over the future of a paper storage business in the digital age, Recall shares debuted at $4.15 and closed at $4.50 in a strong first day of trading as an independent entity on Tuesday. The $4.50 closing price implies a market value of $1.4 billion.
Following a failed trade sale of Recall in 2012, global pallet giant Brambles decided to pursue a spin-off of a business some analysts deemed non-core and a distraction to management.
Atlanta-based Mr Pertz, who was appointed to the top job in March, told Fairfax Media that mergers and acquisitions would be a key growth strategy for the company.
"The business has historically been one that has been heavily associated with M&A over at our competitors and with Recall," he said. "Over the last five to seven years we haven't been a participant and our intent as a stand-alone business is to pursue acquisitions. We can get very good cost synergies in a short period of time."
According to IBISWorld, there are more than 1500 document management firms still operating in the US alone. Iron Mountain, a $US5.5 billion ($6 billion) giant, is the biggest global player, followed by Recall.
A former managing director of private equity firm Oneequitypartners, Mr Pertz is no stranger to M&A. According to Goldman Sachs analyst Andrew Gibson, Mr Pertz oversaw more than 60 acquisitions when he was CEO of Culligan Water Technologies.
He is also chasing the unvended (non-outsourced) market. He estimates that 65 per cent of the $US20 billion global document management services market is unvended. "Our industry is unique in that there is a significant piece of the market that is unvended. Customers that are still doing their own management of documents internally are feeling the need to comply more and more with increasing regulation."
Mr Pertz said the demerger was the right thing for Recall and Brambles. He said the split would allow Recall to focus on its different customer base and be more agile with its own cashflow and capital management.
He also rejected concerns that the structural headwinds posed by the internet and digital storage were eroding the company's business model, pointing out that storage of customer documents had been growing at a compound annual rate of 5 per cent over the past five years.
"The same question was being asked five and even 10 years ago. If you look at other paper-related businesses like media or phone books, there's a big difference. In those businesses, paper is a medium of communication."
Recall operates in 23 countries with major markets in the US, Australia and Asia. The company generates about $850 million in revenue, split across document management services, secure destruction and data protection.
Recall has targeted a dividend payout ratio of 60 per cent of net profit. Mr Pertz said the dividend was not a sign the company lacked growth opportunities.
"It's a very high quality company in a very attractive space that can provide both a reasonable dividend backed by strong recurring revenue streams and cash flows, but still have the ability to invest in capital expenditure and hopefully accelerate growth in the future," he said.
Brambles shareholders will receive one Recall share for every five Brambles shares they own. No new capital was raised in the listing.