Downer EDI Completes Sale of 70 per cent of Spotless Laundries
- Sale valued at $155 million
- DOW has now completely exited from Underground Mining services
- A contract worth $245 million has been awarded to DOW
Downer EDI (ASX:DOW) announced on 1 April 2021 that it had completed the sale of 70 per cent of the company’s interest in Spotless Laundries, part of a wholly-owned subsidiary of DOW, to an Australian private equity firm called Adamantem Capital. DOW reports that the sale resulted in a total revenue of $155 million on a cash and debt-free basis.
After this transaction, the company plans to cease consolidation of its Laundries Business but retain the remaining 30 per cent ownership. DOW’s Laundries sector continues to recover from the COVID19 lockdowns that were enforced in New Zealand and Victoria, and by retaining the 30 per cent stake, DOW hopes to still participate in this ongoing recovery.
Confirmation of the sale is welcome news as this is actually DOW’s second attempt at divesting its holdings in Spotless Laundries. South Pacific Laundry, a previous potential buyer, decided not to follow through with the transaction after the Australian Competition and Consumer Commission (ACCC) expressed anti-competition concerns and officially withdrew on 4 November 2020.
The main concerns raised by the ACCC on 27 August 2020 were related to operations in Adelaide, Perth, Sydney and Melbourne areas, where the merger would combine two of the largest laundry service providers in the area and may decrease competition. No such concerns were raised concerning Adamantem Capital.
Downer is a highly diversified company that reports results under several service lines: Transport, Utilities, Facilities, Engineering, Construction & Maintenance (EC&M) and Mining. Recently however, they have settled on a strategy of focusing on their core Urban Services businesses, mainly Transport and Utilities.
As often cited by management, the main advantage of this strategy is that these service-based businesses tend to be capital-light, generating lower risk and more predictable revenues. DOW has therefore been making a large, concerted effort to move away from its more capital-intensive businesses.
The divestment is just one of many moves that DOW has made recently to pursue its Urban Services Strategy. In March 2021, the company made three other significant announcements. On 1 March 2021 DOW announced that it had completed the sale of Downer Blasting Services to a subsidiary of Sigdo Koppers Group for $62 million.
On 4 March 2021, the company also announced that they had completed the transition of underground mining services at OZ Minerals’ Carrapateena mine to Byrnecut Australia. This transition includes the sale of $56 million of mining equipment from DOW to Byrnecut and combined with the unwinding of working capital, represents a total of $70 million in revenue.
With the transfer complete, DOW has now completely exited from underground mining services and fully committed to its Urban Services Strategy. On the same note, the company also announced on 4 March 2021 that it has been awarded a $245 million contract by ElectraNet Pty Ltd to upgrade existing electrical infrastructure.