Ann: Acquisition of Black Rubber, page-12

Strangely muted market response to this announcement yesterday, I thought.

For mine, the acquisition has plenty of merit, on several fronts:

1. At an EV/EBITDA acquisition multiple of ~4x, it is clearly value-accretive

2. It is also earnings quality-enhancing, with EBITDA margins of ~14%/15%, cf. NTD's current 10%

3. The obvious cost synergies from eliminating duplicated fixed cost overheads - for this scale and type of acquisition, there's normally at least $1m up for grabs (mostly duplicated corporate overheads);

4. Revenue synergies - I don't sense there is that much geographical overlap, so this is not really a "buy- out-the-opposition-to-reduce-pricing-competition" type of transaction, but there is some scope for Black Rubber products and/or services to be run through NTD's distribution network

5. The re-treading component of Black Rubber's business has some sustainability cachet - which must be worth at least half, or three-quarters, of a valuation point re-rating.

6. The most important attribute of this acquisition, though, is that it takes a reasonably meaningful step away from the customer concentration represented by the Goodyear relationship.


More smart deals like these over the foreseeable future will render the Goodyear issue somewhat moot.
(As it is I think the odds of Goodyear simply continuing to use NTD to distribute Goodyear products in Australia are better than 50% - why would Goodyear risk foregoing meaningful sales volumes by trying to save on a few % of distribution margin paid to the country's largest independent distributor?)