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Matthew Smith has been a business and financial journalist for more than a decade. He previously worked with the Financial Times Group, reporting from New York on company buyouts and refinancing in the wake of the Global Financial Crisis. He started his career reporting on the funds management industry in Sydney.

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Billabong turnaround better done in private

Published 17 December 2012 19:51, Updated 19 December 2012 04:13

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Billabong turnaround better done in private

Commonwealth analyst Jordan Rogers says the 6.8-times EBITDA multiple being touted for Billabong is well below what’s been offered for other activewear makers Photo: Glenn Hunt

Updated | The best place for Billabong to complete its turnaround plan could be away from the spotlight of the public markets, one corporate lawyer who specialises in private equity deals says.

Billabong has received no less than five takeover attempts this year and should sit more comfortably in private equity hands, King & Wood Mallesons head of private equity Mark McNamara says.

“The industry is watching this [latest buyout approach] with interest … the expectation is it will probably trade [sell to a buyout fund] at some point,” McNamara says.

The Australian Financial Review reported on Monday that Billabong International director Paul Naude has teamed up with New York-based buyout firm Sycamore Partners in a $527 million play for the embattled surf wear company.

The reported $1.10 a share offer represents 6.8 times Billabong’s 2013 earnings before interest tax, depreciation and amortisation, Commonwealth Bank analyst Jordan Rogers told BRW.

It compares with the average 12 times equity valuation/EBITDA multiple of other recent deals, including Volcom (14 times) Puma (12 times) and Timberland (9.3 times).

However, McNamara believes that given the previous multiple approaches, any offer at this stage from a buyout fund is unlikely to be a “low-ball” bid designed to open negotiations in lieu of a higher offer.

He says any potential bidder will want a recommendation from the board. An offer from private equity at this stage is more likely to represent the actual value a buyer ascribes to the business.

“[Any potential bidder will be] trying to put a bid that makes sense given the restructuring involved. There’s a fairly significant restructuring effort that has to go on here and going private is a good place for that to happen,” McNamara says.

Billabong was initially put into play in February when buyout firm TPG approached the embattled surfwear company and subsequently made a cash offer of $1.45 a share in July.

After buyout interest fell away, Billabong announced a turnaround plan involving repositioning the brand and the rollout of a global technology platform.

CBA’s Rogers says he would be surprised if any potential bidder for Billabong would be looking to make a partial bid for the company, given Billabong has already hived off its fastest growing asset. California-based Trilantic Capital Partners bought half of Billabong’s Nixon label this year.

“The crux of the business is the turnaround of the brand story – any new buyer would have to be investing in that,” he says.

Now read: How surf wear got caught in a rip

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