A leading Turkish household appliances manufacturer is acquiring 100 percent shareholdings in Dawlance Pakistan for $258 million, said a research report of Deutsche Bank Thursday. "Arcelik announced that its subsidiary Ardutch BV signed an agreement today to acquire three Pakistan and British Virgin Islands-based companies that own 100 percent of Dawlance of Pakistan for USD258m," it said.

The deal, it said, was likely to be closed by the year end, as it required approvals from competition authorities, purchase of minority stakes and transferring of land and buildings that are currently being used to the ownership of the company. Dawlance, the report said, was a market leader in refrigerator and microwaves in Pakistan having three refrigerator, microwaves and air conditioners producing facilities in the country.

"As of 2015, Dawlance had revenues, EBITDA (adjusted) and net debt of USD220.6m, USD45m and USD30m, respectively. Note also that according to the company''s website, the company, which is established in 1980, has the largest dealers'' network and after-sales services across Pakistan," it said.

Analysing market reaction, the report said the acquisition was in line with Arcelik management''s strategy of engaging in international acquisitions. "We expect positive market reaction to the acquisition of Dawlance," the analysts at Deutsche Bank said. It, they said, would support Arcelik''s recent move into the South Asia/ASEAN region, following the starting of production in Thailand at the beginning of 2016.

With a population of 185 million, which is very young (35 percent of population is under the age of 15), the acquisition offers exposure to the Pakistani white goods market that has strong growth potential. "The deal values a market leader in an under penetrated market at an EV/EBITDA of 6.4x, (Arcelik''s current EV/EBITDA of 8.3x), which appears attractive," it said.

With an EBITDA margin of 20 percent in 2015 (vs. Arcelik''s 10.3 percent), Dawlance is likely to support Arcelik''s margins. Dawlance''s revenue and EBITDA accounts for 4 percent and 8 percent of Arcelik''s consolidated financials as of 2015. Also note that the acquisition price of $258 million is 5.8 percent of Arcelik''s market capitalisation as of June 29. About financing of the deal, the report said, Arcelik had a net debt of TRY3.1 billion ($1.1bn, Net debt to EBITDA of 2.0x) as of end 1Q16. However, it said, Arcelik Thursday announced that sale of 3.98 percent of Koc Financial Services to Koc Holding is completed, which brought TRY559m ($194 million) of cash to Arcelik.

Copyright Business Recorder, 2016