What: Leading logistics firm Brambles Limited (ASX: BXB) has today announced the US$545 million acquisition of UK-based specialist container business Ferguson Group. According to CEO Tom Gorman, Ferguson Group: "Is a very strong fit for Brambles." It also provides the opportunity for further expansion of the group's Containers division into the global offshore oil and gas sector.
By lunchtime Brambles' share price had fallen 0.6% on the news against a broader 0.2% rise in the S&P/ASX 200 Index (INDEXASX: XJO). This suggests shareholders are uncertain as to what to make of the acquisition.
So what: It's a reasonably large acquisition for the blue-chip company considering the balance sheet at 30 June 2014 showed net equity of US$2.75 billion. Ferguson Group will be integrated into the current Brambles Containers division and given Brambles' experience with acquisitions it's reasonable to assume that some synergies will be garnered from combining the two businesses.
Now what: Ferguson Group looks to have a compelling growth profile, with the business having recorded compound growth in sales revenue of 11% per annum since 2011, with "an attractive margin and return on capital profile." The acquisition will also help beef-up the Containers division into a more meaningful contributor to the enlarged group, with management suggesting the division on a pro-forma basis will account for 9% of group revenue.
Game changer?
Large acquisitions do involve execution risk, however on the face of it Ferguson Group would appear to be a good fit for Brambles. The acquisition will be 100% funded through existing debt facilities and is expected to be accretive to underlying earnings per share (EPS) in the current 2015 financial year.
It may not be a game changer acquisition but it does look sensible. As such, the stock is worth monitoring as any share price weakness could offer a buying opportunity for long-term investors.
