Global private equity buyout firm CVC Capital Partners has pulled out of preliminary acquisition discussions with Brambles (ASX: BXB), the company has announced.
Brambles’ 17 May announcement came just a day after the company confirmed reports that it had engaged with London-based CVC “in regard to an unsolicited proposal to acquire all of the shares in Brambles”.
“Brambles informs the market that CVC has today advised that it will not be putting forward a proposal nor seeking to conduct detailed due diligence at this time due to the current external market volatility. The engagement has therefore concluded earlier today,” the company said.
Brambles said its board and management remained focused on implementing its previously announced “Shaping our Future” transformation plan.
In its prior announcement, Brambles had, however, noted that its board was “considering other strategic options for the company to maximise shareholder value”. Whether that meant that other parties had expressed interest in acquiring the business or simply that it was hoping to attract other offers, remains to be seen.
Brambles operates international pallet and container hire business CHEP.
The business has strong markets, particularly in the US, but has faced challenges in maintaining supply of pallets, despite attempts to replace easily damaged wooden pallets with plastic alternatives.
In a trading update on 21 April, Brambles had reported that its sales revenue of more than $US4 billion over the first nine months of the current financial year was more than 7% up on the prior corresponding period. The company upgraded previous guidance for underlying profit growth for the full year of 3-5% to 6-7%.
Brambles’ share price increased 11.1% from $10.44 to $11.59 in response to the announcement of CVC’s interest. News that CVC was no longer interested sent the shares back down to $10.67 by early afternoon the following day. The highest price the shares have traded at over the last ten years was $13.20 in 2016.
A large bid for an Australian company had been anticipated since CVC re-established a Sydney office last year but perhaps not as large a bid as would be required to land the $16.65 billion market cap Brambles. Public to private bids, would, however, be expected from a firm which has $US115 billion in assets under management.
London-based CVC closed its local office ten years ago following its $1.9 billion loss on television company Nine Entertainment. The firm later blamed errors in that investment on the fact that Australia was a small but very competitive private equity market where large volumes of capital chased relatively few deals.
Since then, CVC has steered clear of large deals in Australia but has continued to invest in smaller deals.
In September, CVC announced the appointment of Brett Sutton, the former local head of Affinity Equity Partners, as chair of Australia. Sutton has been building a deal team since then.
Under Sutton, Affinity successfully invested in another pallet business, Loscam. The firm also even made money out of Nine Entertainment. Affinity acquired Nine’s live entertainment business in 2015 in a deal that valued the business at $640 million. Renamed TEG, the business went on to acquire several smaller operations before it was exited to US private equity firm Silver Lake Capital in 2019. That deal was believed to value TEG at more than $1 billion.
Image: Brambles operates international pallet hire business CHEP.