Montreal-based Domtar Corp. UFS-T has acquired a maker of adult incontinence products as part of its strategy to cushion the cycles of the pulp and paper business.
By purchasing consumer products company Attends Healthcare Inc., it also gets a recession-resistant company that will be a major user of Domtar pulp.
Domtar said Monday it will pay $315-million (U.S.) – including about $100-million to assume the debt – for Attends, a Greenville, N.C.-based company with sales of about $200-million a year across North America. When the deal is done, Attends will use the “fluff pulp” produced at Domtar’s nearby mill, just down the road in Plymouth, N.C., to manufacture its adult diapers.
Domtar bought Attends from KPS Capital Partners LP, a New York-based private equity fund that picked up the company in 2007 when it was known as PaperPak Products Inc.
For Domtar, which has been looking for ways to diversify away from the declining office paper business, the purchase of Attends is a “measured step” into the consumer products market, chief executive officer John Williams said in a statement.
The acquisition will provide Domtar’s earnings with “a bit of top-line oxygen,” said Pascal Bossé, vice-president of investor relations. Attends sales have been growing at about 8 per cent a year since 2007, he said, and the overall incontinence-care market is effectively recession-proof because of the steady increase in the number of senior citizens.
Statistics compiled by the National Association for Continence in the United States indicate that 25 million Americans experience urinary incontinence. The incontinence product market is growing at about 7 per cent a year.
Mr. Bossé said the fact that the Domtar mill is just 100 kilometres from the Attends plant is an added bonus.
Domtar will likely purchase other consumer product companies in the future, he said, particularly if they complement the company’s expertise in the pulp business. The tissue market is one area that would bring “a compelling strategic fit to our existing operations.”
Still, Mr. Bossé said, Domtar is “extremely patient” in evaluating potential acquisitions, and “we are not going to bet the shop and go into some wild journey of expanding in geographies we don’t know or in areas that we’re not comfortable with.”
Some analysts suggested yesterday that Domtar had paid a premium price for Attends, but the close proximity to its pulp plant made it worthwhile.
Analyst Paul Quinn of RBC Dominion Securities said in a note that “while we view the … multiple as somewhat expensive, if management is able to execute on their plans to double Attends’ earnings within five years, the valuation looks attractive …” He projected that the acquisition will add about $41-million to Domtar’s EDITDA (earnings before interest, taxes, depreciation and amortization) in 2012.
Investors appeared to approve of the deal, as Domtar’s stock jumped more than 4 per cent Monday to close at $72.68.
