Following the recent acquisition announcements of Optos plc, Ansaldo & Axis AB by Nikon, Hitachi and Canon, this is another large scale European acquisition by a Japanese company. Acquisition of Domino Printing will add to Brother’s own printing equipment assortment, further deepening its exposure to industrial printing (equipment).
Deal announcement comes couple of months after DNO announced significant profit warning n Jul-15 (with DNO share price droppingabout 22% from GBp 770 to GBp 600 levels), stating it was very cautious about the markets in which it operates and that it was expecting results for the year to Oct-15 top be at broadly similar level to the 2014 financial year.
Although there might be some regulatory timing risk associated with potential MOFCOM approval, there is no regulatory deal risk as a) Brother Industries not considered as real large competitor for DNO as Domino operates in a market where there are two large, US competitors (Danaher and Dover) with Domino being the third largest in the global market – the remainder of the market is hugely fragmented; and b) DNO is relatively smallish player with its global revenues spread across the globe (largest geography Europe with about USD 315m in annual revenues, then Americas with USD 120m and rest of world only around USD 150m in revenues).
Main angle to this deal is potential counter interest from the other 2 North-American large industrial printing equipments giants Danaher (EV around $60bn) or Dover (EV around $ 14bn), who both have been consolidating this fragmented market, and for whom DNO would be easily absorbable target.
Adding to potential chance of counter interest is a) very recent signing of confidentiality agreement (18 Feb 15) and b) lack of shareholder irrevocables for this deal, despite large number of decent UK institutional shareholders in the DNO register.
Strong, strategic buyer without financing risk. No regulatory risk. Some timing risk related to MOFCOM approval. Potential for counter interest from US giants Danaher or Dover. 20% deal break downside. Limited liquidity. Currently overshooting to upside given large short interest covering.
Low conditionality deal with good chance of counter interest (headlines) optionality.