UPDATE: SGS Steps Up Deal Pace; Doesn't Seek Big Rival Merger
December 13 2010 - 9:17AM
Dow Jones News
Goods inspection company SGS SA (SGSN.VX) Monday stepped up the
pace and size of dealmaking to meet its 2014 financial targets, but
said a major move with one of its largest rivals--Bureau Veritas SA
(BVI.FR) and Intertek Group PLC (ITRK.LN)--is "effectively off the
table."
Geneva-based SGS's EUR180 million play Monday for the automotive
division of Inspeccion Tecnica de Vehiculos, or ITV, is the latest
in a string of recent deals, and shows consolidation in the
highly-fragmented inspection and certification industry is heating
up, according to analysts.
SGS has been a copious industry acquirer in recent months,
buying Chinese Yan Tai HuaJian Inspection Engineering Co. Ltd.,
M-Scan, a U.K.-based company for chemical and biochemical testing,
and last week Atest SA, a Swiss energy and rail inspector.
At the same time, inspection and certification deals are getting
bigger: SGS's French rival Bureau Veritas was responsible for the
splashiest of recent deals, acquiring U.K. peer Inspectorate for
GBP540 million in June.
Shortly after selling Inspectorate to Bureau Veritas, 3i Group
PLC (III.LN) bought Netherlands-based Stork Materials Technology
for EUR150 million. Last week, Carlyle Group bought Velosi For
EUR105 million. And SGS's EUR180 million acquisition of ITV is the
largest the Swiss company has done in years.
"We believe as well that the company is proving that it is able
to accelerate the pace of acquisitions," Bank Vontobel analyst
Jean-Philippe Bertschy said. He rates the stock at hold with at
CHF1,800 target price.
Nevertheless, there is a cap on deal size, SGS executive and
spokesman Jean-Luc de Buman indicated, saying SGS as well as Bureau
Veritas and Intertek have changed considerably compared with
several years ago, when the Swiss firm wasn't shy about the
prospect of a major, transformational deal with one of the big
rivals.
Now, the two big rivals are no longer as attractive to SGS, as
Veritas has a much stronger focus on oil-and-gas and minerals after
its 2008 acquisition of Amdel in Australia and then more recently
of Inspectorate, making for more overlap with the Swiss company.
Bureau Veritas is controlled by France-based investment company
Wendel Investissement (12120.FR).
Intertek would also present considerable overlap--even after the
U.K. company ditched takeover talks with Norway's Det Norske
Veritas--in particular in oil-and-gas and consumer testing.
"There are plenty of different targets, even if they are hard to
identify. They can buy the technology from these smaller companies
and replicate it throughout their network," Vontobel's Bertschy
said. SGS's de Buman confirmed the company remains focused on
smaller acquisitions, mainly in existing business areas.
SGS's shares were little changed on the news. At 1222 GMT, the
stock was CHF3 lower, or down 0.2%, at CHF1,658, bucking a 0.4%
rise in the broader Swiss blue-chip market.
Under Chief Executive Chris Kirk, who was brought in late in
2006 to push dealmaking, SGS needs to step up the pace of its
acquisitions even more, in order to meet 2014 financial goals,
including revenue of 8 billion Swiss francs ($8.16 billion),
operating income of CHF1.6 billion and earnings per share of
CHF140.
"ITV is SGS's biggest transaction in years, but it still
corresponds to only 1.7% of group revenues. To reach its objectives
for 2014, SGS has to turn more aggressive in terms of acquisitions
as in the past," Helvea analyst Chris Burger said. He rates the
stock at neutral.
-By Katharina Bart, Dow Jones Newswires; +41 43 443 8043;
katharina.bart@dowjones.com
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