Pact manufacturing division in private equity group’s sights

Pact moved swiftly early last year to start manufacturing hand sanitiser. Picture: NCA NewsWire / Jenny Evans

A Sydney-based private equity group is believed to have been in talks with Pact for a potential acquisition of its contract manufacturing division.

It is understood that the talks have been taking place since late last year with the potential buyer.

Pact put the division up for sale a year ago through investment bank Citi and the process has proved slow going despite the strong lift in sales from making products to guard consumers against the pandemic.

A year ago, analysts estimated the division to be worth between $120m and $140m.

That estimate equated to between six and seven times its earnings before interest, tax, depreciation and amortisation.

However, since that time, the division has staged an impressive turnaround as Pact moved swiftly early last year to start producing hand sanitiser for COVID-19 through the contract manufacturing division.

In Pact’s full-year results, the company said the division had achieved solid organic growth, with earnings of $47.5m for the 2020 financial year, up 59.5 per cent from 2019, when contract manufacturing generated revenue of $372m and EBITDA of $25m.

The EBITDA had fallen 37 per cent from fiscal 2018, impacted by customer destocking, weaker demand and adverse product mix.

Pact’s hand sanitiser is sold into the market through retailers such as Bunnings under the Scotts brand and last year was selling direct to major corporates under the Stay Safe brand, through direct deals with corporates such as Westpac, PwC and EY.

But buyouts fund will no doubt be focused on long-term performance in the aftermath of COVID-19, and whether it is snapped up by the Sydney fund is expected to largely come down to price.

A year ago, analysts said the sale would go a long way to improving Pact’s stretched balance sheet and made strategic sense by simplifying the business.

But the thinking now is if the right price is not achieved for the contract manufacturing arm, Pact is likely to retain the division, given that it is currently a strong earnings generator.

The contract manufacturing business of Pact includes the combined businesses of Jalco, Pascoe’s and Australian Pharmaceutical Manufacturers, which PGH acquired over the past six years.

It provides contract manufacturing services for the home care, personal care and the health and wellness sectors.