Ansell/ANN

ANN (large personal protection equipment provider) out with a cap raise to buy the Kimberly Clark PPE arm.

For the first time in a while, we (Aequitas) are pretty excited about a bit of M&A.

Whilst I don’t think the timing is 100% ideal, in that ANN have been recovering from an 18 month destocking event, which has weighed on sales and earnings, I think the complementary fit of the business is, essentially, excellent, and therefore sometimes you’ve just gotta pull the trigger.

KC are a willing seller (it was KC’s idea to sell, not ANN’s approach to buy) with a highly regarded product offering, and sales capability (it’s not manufacturing, KC design, but out-source the manufacturing) that is #1 by share in markets complementary to ANN (e.g. stronger in North America, with ANN stronger in EMEA) at a sales price (EBIT multiple) that is below what ANN presently trades on.

Both KC and ANN are through the destocking event, which means cyclically depressed earnings, in a growth segment (the Life Sciences section has grown well, and continues to grow well), and, if believed (or rather if executed well) would deliever double digit EPS growth (inc synergies) over time.

The KC business is substantially higher margin, and the ANN balance sheet in good enough nick that they can takeover/integrate the business, without ND/EBITDA getting to “worrisome” levels.

There’s something a bit vague or ephemeral about acquisitions; sometimes you listen to the sales presentation/pitch and feel it is “empire building” or “just not that clear a rationale”. Sometimes it comes across as underwhelming, flat, uninspired; these are all adjectives to describe what is unclear, and the unclear bit is the future, how does it all play out.

In this case, whatever magic is ascribed to confidence, enthusiasm, articulation, feels very much in ANN’s favour. We’ve been through a few of these acquisitions of late (Treasury, with DAUO, Orora, with Saverglass) and in both instances felt it was much more “52% vs 48%” for how it would work out. DAUO seemed like overpaying for good assets, and possibly covering up a sales slowdown in the rest of the business, Saverglass felt like buying an over-earning business for cheap in a part of the world with no plausible synergies. In both instances, the share price moved quite quickly to reflect the markets concerns, in TWE’s case, there was no downgrade (at least, not yet, famous last words obviously, but there was a positive catalyst in the form of tarrif removal) and in ORA’s case the downgrade did come, and a cheap stock got even cheaper.

In ANN’s case, we feel the acquisition is highly complementary, compelling, logical, and a bunch of other words that indicate a much higher degree of confidence on how the whole thing will work out, overall.

Important Information: This document has been prepared by Aequitas Investment Partners ABN 92 644 165 266 (“Aequitas”, “our”, “we”), a Corporate Authorised Representative (no. 1284389) of C2 Financial Services, (Australian Financial Services Licensee no. 502171), and is for distribution within Australia to wholesale clients and financial advisers only.

This document is based on information available at the time of publishing, information which we believe is correct and any opinions, conclusions or forecasts are reasonably held or made as at the time of its compilation, but no warranty is made as to its accuracy, reliability or completeness. To the extent permitted by law, neither Aequitas nor any of its affiliates accept liability to any person for loss or damage arising from the use of the information herein.

Please note that past performance is not a reliable indicator of future performance.

General Advice Warning: This document has been prepared without taking into account your objectives, financial situation or needs, and therefore you should consider its appropriateness, having regard to your objectives, financial situation and needs. Before making any decision about whether to acquire a financial product, you should obtain and read the relevant Product Disclosure Statement (PDS) or Investor Directed Portfolio Service Guide (IDPS Guide) and consider talking to a financial adviser.

Taxation warning: Any taxation considerations are general and based on present taxation laws and may be subject to change. Aequitas is not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and investors should seek tax advice from a registered tax agent or a registered tax (financial) adviser if they intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.