Atalian - Cleaning the shelves.
All,
Please find our unchanged analysis here.
For two years we have been either short or looking to short Atalian. Despite being sceptical about Atalian’s ability to attract minority equity, we weren’t short when the market at large dropped in February. But at least we weren’t short last week when the Julien family went one step further and sold the entire business. CD&R is acquiring the Atalian with a target of completing by the end of 2022. When the deal is done Atalian will buy back its bonds. CD&R has simultaneously agreed to buy OCS (another cleaning company) and the two will be folded together. As a farewell, we have a look at what the combined business may look like before any adjustments.
Headline acquisition multiple is 11.0x:
- The combined 2021 revenues were €4.1bn with an EBITDA of €198m. The combined businesses generated around 5% EBITDA margins. According to the press, the combined price is €2.7bn. Cash on hand at Atalian in June was €136m and we have assumed cash at OCS of €80m.
- If we assume the Debt/Equity split is 70/30 (ambitious in the current environment) leverage would be 7.8x before any synergies. Given the crossover in the UK, there should be significant synergies, but this is not going to be easy.
- The financing package is from Carlyle Group, there are no details about whether the debt has been syndicated yet. Completion is expected by the end of 2022, making Q123 likely to be the earliest for any new bonds.
- CD&R’s binding offer to shareholders will be subject to the usual regulatory approvals and the completion of the acquisition of OCS Group in the UK. A joint price of £2.5bn has been quoted in press reports, weighed towards Atalian.
Bond buyback:
Atalian has said that it intends to call its bonds on completion of the deal. The 2024 bonds are callable at par, but the 2025 and 2026 bonds are currently callable at 101.7/101.3 respectively (both falling to par in May 23). Given there are still execution risks so the bonds will trade at a small discount to their call prices.
Positioning
- We had been short Atalian in the past and had written about our plans to be short in H122 - but missed the opportunity for other reasons. More recently, the outside chance of a deal emerging looked forbiddingly painful to a short and so we were not involved last week - thankfully.
- As the bonds are going to be called and the financing is in place we are shelving the name. We may revisit when the new Atalian/OCS structure comes to market. However, if clients would rather we continue our coverage, please reach out.
Regards
Aengus
Carlyle Global Credit leads the acquisition financing of Atalian and OCS by CD&R | Carlyle
E: amcmahon@sarria.co.uk
T: +44 203 744 7055www.sarria.co.uk