Private equity firms circle Spotless laundries

Downer’s laundries business, which was inherited through its takeover of Spotless, is understood to have attracted a number of private equity suitors, with groups such as CPE Capital and Adamantem Capital among the parties believed to be interested.

The Spotless laundries business was on the market in 2016 and at that time it gained attention from buyout funds such as CPE Capital (previously called Champ), Affinity Equity Partners, Quadrant Private Equity and Archer Capital.

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.

Market analysts say the business is hard to value when it comes to taking into account its earnings before interest, tax, depreciation and amortisation because its capital spending requirement is high.

A better analysis of the business could be obtained by looking at its free cash flow.

For the 2019 financial year, it generated $60.4m in earnings before interest, tax, depreciation and amortisation.

The Spotless laundries business is the largest in Australia. South Pacific Laundries, owned by Anchorage Capital Partners, is the second-largest locally owned player.

Last time, the sale process attracted British commercial laundry service provider Berendsen, US-based service provider Cintas, and London-listed Rentokil Initial, which has a laundries operation in Britain, but it is unclear whether such groups will again line up for the operation. Alsco, which operates in Australia, was also a possible contender.

Spotless was previously owned by Pacific Equity Partners and listed on the Australian Securities Exchange for $2bn.

Downer then embarked on a $1.3bn takeover of the company and secured at least 86 per cent of the business two years ago.

In 2016, Deutsche analysts estimated that the laundries division of Spotless was expected to generate $68m in earnings before interest, tax, depreciation and amortisation for the 2017 financial year.

It estimated that the enterprise value of the operation sits somewhere between $342m and $411m, which implied a price equating to between five and six times its forecast annual EBITDA.

The 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, West 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.