Deals

Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

Amid the Brexit-induced bloodbath roiling European stocks, one company was able to shield its shareholders from pain. It just goes to show what a good deal can do.

Henkel, the Duesseldorf-based consumer-products giant, is one of 30 companies in Germany's benchmark DAX Index -- and the one that was best able to avoid the broad-brush selloff that sent the index as much as 10 percent lower in intra-day trading after U.K. voters decided to leave the European Union. 

Leading the Way
Henkel's acquisition shielded its shares from widespread Brexit-induced selling on Friday, making it the best-performing stock in Germany's benchmark DAX 30 Index

Henkel shareholders had better news to focus on: the company's $3.6 billion acquisition of Sun Products, which makes laundry-detergent brands including All, Sun and Snuggle. The purchase dramatically enhances Henkel's chance of achieving its 2016 revenue goal of 20 billion euros ($22 billion), a feat that my colleague Tara Lachapelle said would be unlikely without an acquisition. 

In fact, if Sun Products' revenue grows even a little from its 2015 level of 1.4 billion euros and Henkel's revenue remains in line with the consensus analyst forecast of 18.43 billion euros, reaching 20 billion euros becomes a rounding issue, rather than a complete stretch. It also boosts the company's exposure to North America to 26 percent from 20 percent, while marginally offsetting its reliance on Western Europe at a period of economic uncertainty due to Brexit.

Within Reach?
Henkel's goal has been to reach 20 billion euros of annual revenue by 2016, a more than 10 percent boost from last year. Analysts didn't seem to have faith Henkel could do it -- at least not without an acquisition.
Source: Bloomberg

Henkel is buying Sun Products from private equity firm Vestar Capital Partners, which created the company in 2008 by merging Unilever's laundry business with another company it owned, Huish Detergents. Notably, the combined company's annual sales exceeded $2 billion back then but have fallen to roughly $1.6 billion, in part due to pricing pressure from rivals like Procter & Gamble and Church & Dwight. 

The good news for Henkel is that its rivals were less aggressive with promotional pricing in 2015, and that may bode well for its profitability going forward, according to Moody's Investors Service. It helps that under Vestar's watch, Sun Products cut costs by reducing the number of its manufacturing plants to two from five, renegotiating supplier contracts and outsourcing warehouse functions.

Sun Products marks Henkel's second-biggest purchase on record and its ninth in the past two years. But even after this deal, the company's ratio of net debt to Ebitda will be below 1, according to Bloomberg Intelligence. That gives it more wherewithal to pursue opportunities than most other consumer-products companies. 

The warm reception from Henkel's shareholders may give some comfort to the management of other European and U.K. companies exploring strategic outbound deals. Even in the most tumultuous of times, it can pay to push forward. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Gillian Tan in New York at gtan129@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net