BUSINESS

Domtar diversifies adult incontinence business with US$61 million EAM acquisition

05/11/2012 04:54 EDT | Updated 07/11/2012 05:12 EDT
MONTREAL - Domtar Corp. is diversifying its adult incontinence business by acquiring U.S.-based EAM Corp., which supplies the core material used in feminine hygiene products and puppy pads.

The US$61 million acquisition of Engineered Absorbent Materials will give the company long-term research capabilities to "further differentiate our full line of adult incontinence products while integrating the best available technology to grow our existing businesses," said president and CEO John Williams.

"EAM's patented, airlaid manufacturing process provides the performance, quality and cost competitiveness that we believe to be keys to success in the personal care market," Williams added.

EAM was purchased by private equity firm Kinderhook Industries LLC in 2005. It develops and manufactures high quality absorbent composite materials used in feminine hygiene, adult incontinence, baby diapers and other medical, health-care and performance packaging solutions.

It operates a 71,000-square-foot facility with a state-of-the-art research campus and production lines in Jesup, Ga., and has annual sales of about US$45 million in more than 50 countries.

In addition to adult incontinence products, Domtar (TSX:UFS) designs, manufactures and markets a wide variety of fibre-based products, including communication papers, specialty and packaging papers and is the largest integrated marketer of uncoated freesheet paper in North America.

The Montreal-based company acquired adult diaper producer Attends HealthCare last year and added the European business early in 2012.

The deal cost US$551 million and added 850 employees on both sides of the Atlantic, or about 10 per cent of Domtar's global workforce.

More than 60 per cent of Attends' business is to institutional customers, rather than consumer buyers of adult incontinence products, feminine hygiene or baby diapers.

Williams said just last week that Domtar could expand its personal care business by adding more consumer incontinence products as part of a plan to transform from a traditional pulp and paper maker to a fibre innovator.

The company's goal is to eventually bring in US$300 million to US$500 million of pre-tax operating earnings (EBITDA) from alternative segments, including personal care products.

"The acquisition of EAM provides Domtar with unique technology and capabilities that will support the growth of its personal care business," stated EAM chief executive Frank Iezzi.

Paul Quinn of RBC Capital Markets said the purchase of EAM adds research and development capabilities and allows Domtar to increase U.S. sales of fluff, which are primarily shipped at higher cost to Asia.

EAM currently acquires most of its fluff from Rayonier, which used to own EAM and is located in the Georgia town. But the company is converting the facility which makes 268,000 tonnes of material annually to higher priced specialty dissolving pulp by the third quarter of 2013.

Quinn said the main benefit of the transaction is to give Attends research and development abilities by adding EAM's NovaThin and NovaZorb ultrathin absorbent cores products.

"It's a way for the Attends brands to probably build that brand out not just to adult incontinence but to feminine hygiene which is about the same size if not bigger than adult incontinence," he said in an interview.

The Vancouver-based analyst believes Domtar will make more of these type of acquisitions.

On the Toronto Stock Exchange, its shares closed down $1.36 at C$81.20 in Friday trading.