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Is it time to buy Ansell?

Protective health and safety manufacturer Ansell (ASX: ANN), has announced the acquisition of BarrierSafe Solutions; a leading North American provider of single-use gloves for a total consideration is US$615 million.

BarrierSafe which has sales of approximately US$290 million per annum, was described by Ansell, as an acquisition which would “further expand its position in the hand protection market in North America and continues to implement its strategy to create shareholder value through organic and acquisition driven growth.”

To fund the acquisition – which was priced at 9.7 times enterprise value to earnings before interest, tax, depreciation and amortisation (EV/EBITDA) – Ansell is conducting a fully-underwritten equity raising for US$308 million and share purchase plan (SPP) to raise a further US$91 million.

What the acquisition means for investors

Ansell expects significant cost synergies from both supply chain savings and increased cross-selling and vertical development. Management provided guidance that on a normalised basis, they expect the BarrierSafe acquisition to be accretive to earnings per share (EPS) in the low-single digit percentages in financial year (FY) 2014 and in the mid-single digit percentages in FY 2015.

Foolish takeaway

While Ansell trades on a trailing price-to-earnings ratio (PE) of 18.5, this is not particularly expensive considering the company’s impressive track record. Not only have there been 20 successive dividend increases over the past 10 years but Ansell has also delivered shareholders 10 years of EPS growth.

The size of the BarrierSafe acquisition is undoubtedly material to Ansell and should allow the company to continue its growth trajectory and also expand its presence in the US market and increase its exposure to US dollar denominated earnings.

As investors in businesses with leading positions in the USA – such as Brambles (ASX: BXB) and CSL (ASX: CSL) – are aware, the benefits of exposure to these markets in terms of growth potential can be highly desirable. BarrierSafe looks like an appealing investment for Ansell and shareholders should probably consider taking up their SPP entitlements.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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