Hengan International reaches for ABC Tissue

ABC Tissue’s major supplier, Hengan International Group, is believed to be lining up to buy the business that is up for sale through Morgan Stanley.

Sales documents are with prospective suitors for the business that may sell for up to $1bn, and some are tipping Hengan will knock other parties out of the running.

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

The other contender known to be eager to buy ABC Tissue has been Pacific Equity Partners, which has a strong track record of turning around manufacturing businesses. It previously owned ABC Tissue’s major rival, Asaleo Care, earlier known as SCA Hygiene.

The challenge for PEP is likely to be that with Hengan as a contender, it is 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.

Elsewhere, New Zealand-based boutique advisory firm Jarden is about to take on its Australian rivals this side of the Tasman.

Jarden, which recently changed its name from First NZ Capital, has traditionally worked on Australian deals with Credit Suisse, which it counts as its global strategic alliance partner.

However, it is understood the firm, run by James Lee, is eager to fill what it believes is a gap in the Australian small to mid-cap market with respect to analyst research.

The group will initially have just analyst coverage out of its Sydney office but it may later extend to a full equities offering.

Working for Jarden in Australia will be small-cap analyst Wassim Kisirwani, who left Deutsche Bank when the German-based financial opted to close its equities operations internationally.

Jarden is one of New Zealand’s major corporate advisory firms.