Brambles has launched a $555 million foray in the oil and gas sector in buying a British specialist container business but analysts have queried the value of the deal.
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Brambles on Tuesday announced it had acquired the Ferguson Group, a 38-year-old company based in Aberdeen, Scotland for ₤320 million ($555 million).
The price is 10 times Ferguson's forecast earnings for the year to December, 2014, and analysts have questioned Brambles' ability to deliver a return on investment.
"It looks like you are paying a lot for goodwill," Citi analyst Anthony Moulder asked chief executive Tom Gorman during a conference call.
CLSA head of research Scott Ryall said the deal was "not cheap" and there were no obvious cost savings.
"They have not demonstrably overpaid, mind you, but it is not clear that this is a great deal," Mr Ryall said.
Brambles shares fell 6 cents, or 0.6 per cent, to $9.46 in afternoon trade on Tuesday.
Mr Gorman defended the acquisition, saying it was a "very strong fit".
He said the company had been searching for takeover targets for "some time", in an effort to gain exposure to surging global demand for energy.
"Our due diligence suggests 7 per cent compound global offshore production spend between 2013 and 2018, and an 11 per cent increase in drilling days over the same period," Mr Gorman said.
"In this environment Ferguson Group expects to continue to expand its presence and share in the established market while also expanding geographically and expanding its product lines."
Mr Gorman said Ferguson's founder, Steven Ferguson, had been preparing the next phase of growth for the business, with capital expenditure averaging ₤24 million ($A41.7 million) in the past three years.
"Steven has run this business extremely well … and we're in the position now, having acquired the business, to deliver that next level of growth," Mr Gorman said, adding that Brambles would keep Ferguson's capital expenditure at its current levels.
"We are confident that incremental investment in the business will deliver returns on capital investment commensurate with the rest of the Brambles Group."
And Mr Gorman said Ferguson had an "unbroken 10-year record" in sales and earnings growth, and delivering return on capital.
But he said Brambles wasn't just bringing more cash to the British company.
"We will provide capital here, but if the assumption is that's all we are providing, I think you're misinterpreting.
"In addition we can provide … we take the vertical expertise that the Ferguson management team has and we combine that with the pooling expertise we have on a global basis. We have experience with a wide range of container types as a company. We can make the business more efficient."
Mr Gorman said the business would complement Brambles' CHEP Catalyst and Chemical Containers business, which supplies downstream oil and gas projects. He expected the deal to be accretive to Brambles underlying earnings per share from the 2015 financial year.
But Mr Ryall remained unconvinced. "It is earnings per share accretive but it is 100 per cent debt funded - anything can be EPS accretive with debt costs where they are - this is not convincing to me," he said.
"Yes it is a pooling business and we have written volumes on this in our detailed reports over the last couple of years – but the commonality here was servicing different parts of the [fast moving consumer goods] supply chain.
"We will need to do some more work on the [oil and gas] supply chains to understand where Brambles can add value."
The acquisition is expected to be complete by the end of this month.
Ferguson provides more than 18,000 containers to the offshore oil and gas industry for the transport of items including fluids and equipment. It has bases in Scotland, Norway, Singapore the United Arab Emirates and Australia.
