Deal Reporter
Intertek, a UK-based provider of quality and safety services, has a strong pipeline of acquisition opportunities and may enter new areas through M&A, according to new CEO Andre Lacroix.
In his prepared remarks on the 2Q15 earnings call held 3 August, Lacroix, who became CEO effective 16 May, said M&A was important to the company and it considered acquisitions in growing sectors with good margin prospects to be a priority.
In the Q&A session, Morgan Stanley analyst Toby Reeks noted that Lacroix had done little M&A in his previous employment, and asked if there would be a change in direction towards a more internal focus.
The CEO explained that organic investment was Intertek’s first priority, supplemented by good acquisitions. He added that the company’s M&A team, led by VP, Corporate Development Julia Thomas, worked with its local offices to find market opportunities.
“I would say that our pipeline is very rich,” Lacroix continued.
He stressed that the company’s light M&A activity in the first half was unrelated to him recently taking over the CEO role, but instead a natural function of the time taken to process deals through the pipeline.
“I’m very, very excited about the consolidation opportunities in the industry and maybe broad change of strategy, either expanding our existing business lines in additional territories or getting into new business lines, or frankly speaking, getting into new areas,” he added.
Asked by Redburn analyst David Phillips in which areas Intertek sought buys, Lacroix said the company was looking at all its businesses across the globe.
“We’ve got a strong position in many markets and I wouldn’t rule out anything at this stage,” the CEO said. “So we are wide open, and there are some great opportunities out there.”
In his prepared remarks, Lacroix said the company wanted to maintain flexibility and keep an efficient balance sheet with a leverage ratio of 1.5x to 2x net debt to EBITDA going forward. However, the CEO said it was prepared to stretch this on a temporary basis to do a larger transaction and then return to its comfort range over time.
He noted that the company expected net debt at year-end of around GBP 580m to GBP 600m, not including any possible acquisitions that could occur in the second half.
Intertek has five main business divisions: Commodities, Chemicals & Pharmaceuticals, Industry & Assurance, Consumer Goods and Commercial & Electrical. Its services include auditing, certification, consulting, inspection, sourcing and training.
The company announced in October last year the appointment of Lacroix as CEO with effect from 16 May this year. He joined Intertek from Inchcape, where he had been CEO since 2005.
Intertek’s last notable acquisition was the February 2015 purchase of Australia-based Adelaide Inspection Services, a provider of non-destructive testing services, for around GBP 6m.
Intertek has been a prolific acquirer over the past decade, having made several acquisitions each year since 2005, with targets located across Asia, Europe, Australasia and the Americas. The company’s largest during this time was its 2011 purchase of Moody International, a UK-based supplier of management system certification, technical and inspection services, for around GBP 451m.
PwC has advised Intertek on multiple deals in the past 10 years, although Rothschild was used for Moody. DLA Piper was used for that deal as well as numerous earlier and subsequent buys, according to the Mergermarket M&A database.
Prior to joining Intertek in 2013, Thomas spent 12 years in investment banking with JPMorgan Cazenove and Rothschild.
Intertek has a market capitalisation of GBP 4.4bn.