Global private equity firms line up to grab ABC Tissue

Global private equity firms with an Australian presence, such as Blackstone, Kohlberg Kravis Roberts, The Carlyle Group and TPG Capital, are all believed to be vying for ABC Tissue.

Indicative bids for the business are due on Friday in a contest that could be shaping up as a private equity shootout, depending on how far groups progress in the competition.

Also said to be looking is ABC Tissue’s major supplier, Hengan International Group, while a Latin American group is also understood to be in the mix.

The world’s largest pulp and paper company is Chile’s CMPC, although it remains unclear whether it is a suitor.

Hengan International is the largest producer of sanitary napkins and nappies in China. It supplies 80 per cent of ABC Tissue’s pulp material.

Another party thought to be in the sale process early on is BGH Capital.

Action is starting to heat up for major buyout firms as Owens Illinois’ Australian and New Zealand assets are on the market, along with other local groups.

ABC Tissue generates about $75m annually and could sell for as much as $1bn.

The challenge for any buyer could be that with Hengan, as a contender, would be unlikely to be prepared to supply a rival acquirer of the operation.

ABC Tissue makes Quilton and Cotton Soft tissue products and has been placed on the market after its founder and majority owner, Henry Ngai, died last year. It is the second-largest player in the Australian market behind Kimberly-Clark.

The business is understood to generate $70m in annual earnings before interest, tax, depreciation and amortisation.

ABC Tissue generated $37.3m in net profit last year, and it is thought to be highly cash-flow generative, paying out dividends of $44.2m. Annual revenue was $427.6m, up from $415m.

According to IBISWorld, revenue for the sanitary paper product production market in Australia is expected to grow at an annual rate of 1.3 per cent over the next five years.

However, it faces challenges from imports and higher manufacturing costs.

Meanwhile, after cooling its efforts on selling its gyms business, Quadrant Private Equity is said to have been sounding out potential buyers in Asia.

The earlier price expectations were understood to about $1bn and, while US-based Berkshire Partners was looking at the business, it is now understood to have walked away.

Working on a sale of the business in the past has been UBS and Citi.

The logic for targeting Asian buyers is the opportunity to expand the gyms operation through the region.

Quadrant created the Fitness and Lifestyle Group around 2016 through a series of acquisitions, buying the Goodlife Health Clubs from Ardent Leisure for $260m, Jetts Australia for a price reported to be less than $100m, and Fitness First Australia from Oaktree Capital for no more than $300m.