Swiss engineering company Sulzer AG (SUN.EB) Thursday said it
still had an appetite for more acquisitions after announcing the
858 million-Swiss franc ($934 million) purchase of Cardo Flow
Solutions from Sweden's Assa Abloy AB (ASS-B.SK).
The deal is the biggest undertaken by Sulzer in the past 10
years, but Chief Executive Ton Buechner said he would be open to
more.
"We have said we could spend in excess of CHF1 billion. From a
balance sheet perspective we have financial flexibility for further
acquisitive growth opportunities," he said.
The new deals likely would be sized in the gap between the
CHF858 million and the "excess of CHF1 billion," Buechner told
reporters.
"It is unlikely to be something of a similar size, but something
reasonably mid-sized is still possible," Buechner said, adding that
purchases up to CHF200 million could be achieved.
The acquisition is the 16th made by Sulzer since 2006.
Sulzer wants to strengthen its existing divisions by adding
existing or related technology, or enter new markets. The company
didn't want to create a new, fifth division, Buechner said.
Cardo Flow Solutions, based in Malmo, Sweden, is a full-line
supplier of pumps and related equipment primarily for wastewater
applications.
The business, which employs 1,900 people, reported sales of
around CHF463 million and adjusted earnings before interest, tax,
depreciation and amortization, or Ebitda, of CHF67 million in 2010,
implying a 14.5% Ebitda margin, Sulzer said.
The purchase will be financed with existing cash and debt, and
is expected to be completed in the second half of 2011.
Buechner defended the price, which analysts said was expensive
at 12.8x 2010 Cardo's 2010 CHF67 million Ebitda, saying other
companies like ABB Ltd. (ABBN.VX) and General Electric Co. (GE) had
paid higher multiples for acquisitions in 2011.
Analysts in Stockholm agreed that the price tag was higher than
anticipated. "The price is higher than both our estimation and what
I think the market expected," said ABG Sundal Collier analyst
Christer Magnergard.
Buechner also highlighted the long-term potential of the
company, saying it would be positive for earnings excluding
amortization costs in 2012, the first full year of the
acquisition.
The acquisition allows Sulzer, which produces pumps for the oil
and gas industry, to increase its presence in wastewater pumps and
related equipment market.
Water and wastewater will become one of Sulzer's key markets,
accounting for approximately 16% of total sales on a 2010 pro forma
basis, the Winterthur-based company said.
The wastewater market offered strong growth prospects in mature
and emerging markets, driven by long-term trends such as population
growth, increasing water consumption, urbanization and
environmental protection, Sulzer said.
"Sulzer has always looked at mega trends in the world,
population growth, infrastructure demand and increasing numbers of
people living in areas of water distress," Buechner said.
"With environmental restrictions and a strong need to bring used
water back into circulation because of a shortage of water, the
fundamental trends are good."
Historically, the water business has been less cyclical than the
other business segments of Sulzer, he added.
About two-thirds of the Cardo's sales are in Europe, but
Buechner said he could see growth potential in developed and
emerging markets, with a need to replace existing as well as
install new infrastructure.
Sulzer, which is due to report its first-quarter order intake
April 14, had previously targeted significant players in emerging
markets, but had found difficulty finding companies willing to
sell.
Buechner said Sulzer is comfortable buying Western firms and
transferring their technologies world-wide.
"We are not going to stare and then not move," Buechner said.
"We have an incredibly strong ability to take our technology into
emerging markets on the basis of our existing network."
Swedish lock maker Assa Abloy owned Cardo Flow Solutions through
its recently acquired Cardo AB (CARD.SK) subsidiary and the sale
forms part of Assa's stated intention to consolidate Cardo Entrance
Solutions into its own entrance systems division, while selling
other businesses that don't fit its long-term plans.
The agreement doesn't include Lorentzen & Wettre but this
business would be sold at a later date, Assa Abloy said.
At 0930 GMT, Sulzer shares in Zurich traded up CHF5.80, or 4.1%,
at CHF148.90, while in Stockholm shares in Assa Abloy traded up 0.6
Swedish krona, or 0.3%, at SEK185.80.
-By John Revill, Dow Jones Newswires; +41 43 443 8042;
john.revill@dowjones.com
(Sven Grundberg and Dominic Chopping in Stockholm contributed to
this report.)