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Prestige Brands sinks its teeth into DenTek

Nov 23, 2015 - The Deal Pipeline
Mergers and Acquisitions

By agreeing to shell out $225 million in cash for DenTek Holdings Inc., which is best known for inventing Dental Pik flossing instruments,  Prestige Brands Holdings Inc. (PBH) has left itself enough room to execute a much more transformative deal. On Monday, Tarrytown, N.Y.-based Prestige said it was buying DenTek from San Francisco private equity firm TSG Consumer Partners LP, which in 2010 completed its majority recapitalization of the company for an undisclosed price. The Nov.

23 deal is the result of an auction process run by TSG Consumer, Prestige president and CEO Ron Lombardi indicated on a call with analysts Monday morning. Lombardi added that the debt-free deal will be structured similar to a stock-purchase transaction and includes minimal deferred tax assets. "It still leaves them with the ability to do a big deal," B. Riley analyst Linda Bolton Weiser said via phone on Monday, noting that DenTek will boost its leverage ratio by only 0.5 times. (Prestige said in the announcement that it expects to be back at its pre-acquisition leverage level in three quarters or less.) Prior to the DenTek deal, Prestige had about $1.5 billion of deal capacity through next March, Weiser said. Its latest purchase will reduce that figure just slightly, leaving the consumer products company with the firepower to pursue another acquisition in one of its areas of emphasis-----North America, Asia or Australia-----the analyst said. Shares of Prestige, listed on the New York Stock Exchange, jumped about 7.5% to $52.90 midday Monday, assigning the company a market capitalization of about $2.7 billion. Prestige said it plans to tap its existing credit facilities and available cash balance to finance the acquisition. The deal is expected to close within the first half of calendar year 2016, subject to closing conditions, including clearance under the Hart-Scott Rodino Antitrust Improvements Act. Maryville, Tenn.-based DenTek, founded in 1984, encompasses floss products, inter-dental brushes, accessories and protection and pain relief products for dental purposes. About 15% of DenTek's sales are generated globally, most in the U.K. and Germany, Lombardi said on the call. DenTek has itself grown via M&A, purchasing tongue cleaner brand Orabrush and pain relieving brands Canker Cover and OraMoist in separate deals in March. Terms of the transactions were not disclosed. For Prestige, the acquisition will add pro forma revenues and adjusted Ebitda of about $60 million and $23 million, respectively, on an annualized basis, Prestige said. The annualized figures imply Prestige paid approximately 3.75 times revenue and 9.8 time Ebitda for the company. The valuation is on the higher end for Prestige, which in the past has typically paid approximately 7.5 times to 9.5 times adjusted Ebitda for acquisitions, Lombardi said on the call. Prestige's last deal was its $750 million acquisition of Insight Pharmaceuticals Cop., a Trevose, Pa.-based feminine care product maker, which closed in September 2014. While that deal was valued between about 8 and 8.5 times Ebitda, it was closer to a multiple of 9.5 times when all tax benefits were excluded. The valuation for DenTek comes as little surprise given the company's rapid growth in the high single-digits and an Ebitda margin that sits north of Prestige's overall corporate margin, noted B. Riley's Weiser. Prestige's Lombardi added that DenTek is expected to contribute between $0.08 and $0.10 of pro forma adjusted earnings per share and will be accretive to cash flow in its first year of ownership. Prestige will also incur about $7 million in transaction costs, all of which Lombardi said on the call would be non-recurring. Sawaya Segalas & Co. LLC's Fuad Sawaya and Michael Rabin provided financial advice to TSG. A Sidley Austin LLP team led by Mark Metts and Katy Lukaszewski provided counsel to TSG on the transaction. The firm's Chris Glass, Margaret Mudd, Jeff Kinney, Tim Devetski, Omair Khan, Dusan Clark, Marc Raven, Ben Rosemergy, Scott Goldstein and Lauren Gallagher...