SAI Global $400m asset sale may trigger break-up
SAI Global says rapid global consolidation in the quality assurance sector has prompted its decision to start a formal process to sell its own quality assurance business, which may fetch up to $400 million.
The sale process was first revealed by the Street Talk and confirmed by SAI Global in an announcement on Tuesday morning to the Australian Securities Exchange.
It may eventually trigger a further break-up of the rest of SAI, which has been in the spotlight because of a serious squabble with its former parent Standards Australia.
The company said on Tuesday the Assurance business, which provides quality assurance, testing and certification services to customers in the food, consumer goods and agriculture industries including McDonalds, Colgate and Tesco, could offer significant strategic value to global competitors.
"While Assurance is a valuable business to SAI Global, it would require broader geographic coverage and scale in order to be even more competitive," the company said.
SAI's assurance business competes in 120 countries against rivals including Intertek, Bureau Veritas, SGS and IHS who all provide quality assurance, testing and certification services to customers around the world.
The sale process, which is being run by Greenhill & Co, follows approaches from a number of global sector competitors, with SAI having held meetings with a number of them. It didn't name who it had held meetings with.
Buyer deja vu
There is a sense of deja vu in the Assurance sale process because potential buyers crawled all over the SAI business in 2014 when the board put the entire company up for sale following an original $1.1 billion buyout proposal for the whole firm from private equity group Pacific Equity Partners. But that process failed to secure acceptable offers for either all or parts of SAI.
SAI's current chief executive Peter Mullins was hired in late 2014, and has implemented an integrated group-wide marketing approach and aggressively reduced costs.
Now the assurance business is being pursued again by outsiders.
"A successful sale of the assurance business will support SAI's strategy to focus its globally integrated risk management solutions business towards higher margin, higher growth software and digital products and services. The market for these products shows potential for strong demand and attractive returns on investment," the company said.
SAI, which is best known in the broader community for overseeing the Five Ticks quality assurance standards program in Australia, has been in the spotlight because of a renewed bout of legal wrangling with its former parent, the 75-member Standards Australia organisation.
Standards Australia in 2003 spun SAI out onto the ASX as a stand-alone company.
Possible break-up
A sale of the assurance business will make a resolution to the stand-off with Standards Australia even more important for investors, and may potentially trigger a break-up of the rest of SAI.
At issue are the terms and conditions of the Publishing License Agreement, a crucial money-spinner for SAI under which it has the right to publish and sell more than 7000 standards covering hundreds of different industries, and for which it pays a royalty rate of 10 per cent to Standards Australia.
The contract runs until 2018 and there is a five-year option for renewal. Private equity firms and other players have been in contact with Standards Australia to assess how the renewal process might eventually play out and the size of the profit stream after a contract renewal. Separately, Standards Australia has been embarking on a modernisation program of its own.
But Standards Australia can't get involved in a direct merger of its own business with an outsider because it is an independent not-for-profit company limited by guarantee and can't be bought out because of its constitution. It is controlled by 75 organisations including the Minerals Council of Australia, the Australian Window Association, the Australian Acoustical Society, and state governments around the country.
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