UPDATE 2-Germany's Henkel expands laundry brands with $1.3 bln French deal

Thu Jun 5, 2014 7:04am EDT

* Second acquisition for Henkel this week

* Henkel says more deals possible

* Both deals expand position in existing categories, markets (Adds details on BC Partners, background, context, byline)

By Victoria Bryan and Martinne Geller

FRANKFURT/LONDON, June 5 (Reuters) - Henkel & Co plans to buy French household cleaner maker Spotless, for 940 million euros ($1.28 billion) cash, its second purchase in a week as the German consumer goods company builds its presence in large, profitable, mature markets.

Henkel is buying Spotless from London-based private equity firm BC Partners, adding Eau Ecarlate and Dylon laundry products to a portfolio that already includes Persil detergent, Loctite adhesives and Schwarzkopf hair products.

Spotless will give it leading positions in established markets like France, Italy and Britain where home and personal care products enjoy relatively fat profit margins, Henkel said.

The global consumer goods sector is seeing a spate of deals as tough economic conditions are leading small and mid-sized firms to seek entry into new markets or greater scale in existing, mature markets.

Henkel's latest acquisition follows a 270 million euros ($367.78 million) deal on Monday, to buy three U.S. hair care brands. Both purchases are being funded by a 4 billion euro ($5.45 billion) war chest the company has been building over several quarters for acquisitions.

Henkel had been shopping for takeover targets for well over a year as a way to stay competitive in a consolidating consumer goods market increasingly fuelled by emerging markets. By 2016 it aims to have 20 billion euros in sales, up from 16.4 billion in 2013, with half of that coming from emerging markets.

The price paid for Spotless, which includes debt, represents a multiple of 3.4 times sales and 12.1 times earnings before interest, tax, depreciation and amortization (EBITDA). That is higher than the 10 times sales and 1.7 times EBITDA Unilever paid in 2010 for laundry and personal care brands from Sara Lee. Henkel itself trades for about 13.5 times EBITDA and has a market value of about $47 billion.

"The acquisition seems to be rather expensive, but high valuation is justified, due to low volatility business profile and the emerging opportunity to increase market share in the highly competitive Western European laundry market," wrote Equinet Bank analysts in a research note.

According to Euromonitor International, the deal would slightly lift Henkel's share of the $82 billion global laundry care market to 8.7 percent, still well behind Procter & Gamble's 26.6 percent and Unilever's 14.8 percent. Unilever sells Persil detergent in some markets.

Consumer giants like Unilever, Nestle and Procter & Gamble are also taking advantage of high valuations to prune their portfolios and sharpen their focus on their most profitable businesses.

Recent weeks have seen a bidding war for U.S. sausage maker Hillshire Brands, Japan's Mizkan Group buying Unilever's Ragu pasta sauce, Mars Inc buying P&G's pet food unit, L'Oreal buying Chinese beauty mask maker Magic Holdings, and Emperador from the Philippines buying the Whyte & Mackay Scotch whisky business from United Spirits, controlled by Diageo.

Despite Henkel's deals this week, there could still be more, said a spokesman for the company, which pre-empted an auction for Spotless with an offer, according to a source close to the deal.

BC Partners made a return of 2 times its original investment, according to the source. BC bought Spotless from Ardian, formerly Axa Private Equity, in 2010 for 640 million euros including debt. It has not taken any dividends from its investment, said the source.

The deal is subject to approval by antitrust authorities and is expected to be completed in the first quarter of 2015. Henkel said it would add to earnings immediately.

Henkel's shares were up 0.5 percent at 85.69 euros at 0937 GMT, valuing the company at about $47 billion.

BC Partners was advised by JP Morgan and Rothschild on the transaction. ($1 = 0.7341 Euros) (Additional reporting by Freya Berry in London and Matthias Inverardi in Dusseldorf; Editing by Matt Driskill and Elaine Hardcastle)