Smaller Companies: Jeyes Group cleans up with pounds 18m German purchase

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The Independent Online
JEYES GROUP, the household cleaning products company, last week made an important acquisition in Germany that could provide substantial profits growth next year.

On Thursday it announced the purchase of Globol, an airfresheners and toiletries maker for pounds 18m cash, to be financed by a pounds 21m rights issue at 385p.

While the bald facts of the deal are known, the full benefits of the deal - the biggest continental move by Jeyes so far - will take about a year to come through to the bottom line.

There are several positive factors which suggest that the acquisition offers potential, although at face value Jeyes has paid a high price. At the net profit level, Globol, currently owned by British Petroleum, barely broke even last year. This implies an astronomical exit multiple which could dilute Jeyes' earnings this year.

However, Jeyes believes that Globol's management can be revitalised in much the same way as its own was after the management buyout from Cadbury Schweppes in 1986.

Like Jeyes, Globol has languished as a small cog in an multi-national giant, but is likely to receive closer attention under its new parent.

Globol's operating profits have halved from pounds 2.6m in 1989 to pounds 1.3m on sales of almost pounds 40m last year. But in that time it has built a large and well-equipped research and development facility, which should stand Jeyes in good stead.

Both companies know each other's management and have worked closely for several years. Globol has supplied Jeyes with its own products, while acting as a distributor for Jeyes in Germany.

The purchase will involve no management changes and Globol's managing director, Fritz von Philipp, is to join Jeyes' board.

Above all, the commercial synergies between the two should create a powerful medium-sized cleaning products group.

It will boost Jeyes' turnover by almost two-thirds to about pounds 90m a year. Moreover, it adds two new important product ranges that can be sold via Jeyes' existing international distribution network.

Assuming Jeyes can maintain its pre-tax profit margins, the acquisition could raise the enlarged group's taxable profits to about pounds 8m in 1993, compared with pounds 5m forecast by City analysts for the current year.

This rates the shares on a 1993 earnings multiple in the high teens. Not cheap, but the shares are tightly held and any short-term weakness provides a sound buying opportunity.