Downer to the wire: race for Spotless Laundries enters final stages

The competition for Downer’s Spotless Laundries business remains a three-horse race, with suitors now preparing to lob their final bids.

It is understood that final bids for the business are due next week, although the situation has been fluid, with the deadline for parties to confirm offers shifting various times already.

Left in the competition are private equity firms Anchorage Capital Partners and Adamantem Capital, while French laundry giant Elis remains a contender.

Elis, which has looked at the business in the past, describes itself as an international multi-service provider, offering textile, hygiene and facility services solutions.

It has operations in Europe and Latin America, and says it is the leader in most of the 28 countries in which it operates, carrying out commercial laundry services, among others, for both the public and private sectors.

When offering a preview last month of its results, Elis said its revenue reached a new record at €3.3bn ($5.6bn), up by 5 per cent.

The Spotless laundries business is the largest laundry provider in Australia, and Anchorage Capital Partners owns South Pacific Laundries, which is the second-largest locally owned player.

Downer is selling the business after an earlier effort to offload it in 2016. At that time, the division, which was up for sale through Highbury Partnership, was expected to fetch about $400m, but the operation was retained when suitors did not pay up for the asset.

Expectations are that buyers will be prepared to pay about four times the division’s earnings before interest, tax, depreciation and amortisation.

For the 2019 financial year, it generated $60.4m in EBITDA, equating to a price of about $250m.

In 2016, Deutsche analysts estimated the laundries division of Spotless was expected to generate $68m in EBITDA for the 2017 financial year.

The deterrent for many private equity funds that would normally look at the business is that capital costs are high. Sheets need to be replaced every one and a half years because the special chemicals used in washing wears out the materials.

The Spotless Laundries division provides linen and garment services to social infrastructure, industry, accommodation and resources customers in Australia and New Zealand, with 16 laundries processing more than 100,000 tonnes a year.

Key customers include Ramsay Health Care, Healthscope, Western Australia Health, South Australia Health, St John of God and Inghams.

According to IBISWorld, the commercial laundries industry has performed strongly over the past five years. Revenue for companies in the industry is expected to grow at 2.7 per cent annually to reach $1.3bn.