sale of cleanaway looking good

Alliances in Brambles bid
Robert Clow
May 03, 2006

A HANDFUL of trade and private equity alliances have emerged as prime contenders to secure Brambles's much coveted Cleanaway and Industrial Services businesses, which have been put on the market for upwards of $1.5 billion.

Investment bank UBS has whittled down dozens of hopeful bidders to a shortlist that is thought to include private equity firm CHAMP and Transpacific; European waste management company SITA; CCMP Capital Asia and defence contractor Tenix; CVC and Ironbridge; and legendary buyout firm KKR.

Some bidders want to buy both businesses but others are seeking just one. A Brambles spokesman declined to comment on the sales process, which is now in its final phase.

The auction started out with more than 30 bidders. With UBS providing a $900 million financing package, the ultimate price for the two assets is predicted to come close to $1.6 billion. Transpacific has trumpeted its interest in the Brambles assets - possibly as a way to scare other bidders off - but the growing list of alliances suggests it will not have a clear run at the prized assets.

Though it is entirely possible that some of these alliances will splinter as the bidding intensifies and judgments on value diverge.

Many of Australia's best-known private equity firms have already fallen by the wayside. Newbridge Capital and its aggressive US parent Texas Pacific Group appear to have decided to focus on their recent Myer acquisition. Another powerful regional firm, the US-based Carlyle Group, has also failed to make it to the second round.

The two assets are attractive to both trade buyers and private equity bidders because they combine stable, long-term cash flows with some growth prospects.

Waste management has proven popular with private equity firms overseas and the industrial services business could benefit from the resources boom. Industrial Services provides outsourcing services to large industrial sites such as mines.

The two businesses have combined sales of around $900 million and earnings before interest, tax, depreciation and amortisation of around $200 million.

One major potential concern for bidders is the Tullamarine toxic waste dump, which could bring with it substantial future liabilities. Brambles's information memorandum appeared to leave the door open to bidders not acquiring that asset along with the rest of Cleanaway.

But Brambles could struggle to dispose of the asset on its own, so it would probably favour bids that include the asset.

Private equity and trade buyers have different strengths in a bidding process.

Trade buyers can often generate synergies from a deal that a financial buyer cannot, but private equity firms are generally happy to take on a level of leverage and financial risk, which would deter a trade buyer.