Shares of Jarden (NYSE: JAH ) gained 10% in recent trading today, as the market cheered the company's latest acquisition. As has been the case with the firm's other purchases, the $625 million deal will bring more well-known brands under the Jarden umbrella, which already includes consumer products under the brand names Coleman and Mr. Coffee. Perhaps the most compelling aspect of the transaction, though, is the access Jarden will gain to China and other Asian markets.
Jarden will purchase Holmes Group for $420 million in cash and 4.1 million shares of common stock. Privately held Holmes has been in business for 23 years and makes and distributes such products as Crock-Pot slow-cookers, Rival roasters, and Bionaire air purifiers. The business appears pretty solid -- Jarden revealed that Holmes' 2004 revenue was $700 million and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) was $95 million.
Holmes' presence in China was most likely another attractive selling point, since it will offer Jarden a huge opportunity to enhance its sales and distribution in Asia. Holmes has been manufacturing in China for 15 years, and 90% of its wares are made there. The company produces half of those products in its own factory, and the rest of its manufacturing is outsourced.
A few cautionary notes, however. First, the Holmes deal comes roughly nine months after Jarden announced its $745 million purchase of American Household, which means that Jarden is doing a lot of integration in a short time frame. Also, the American Household purchase led to an upsurge in Jarden's long-term debt, which totaled $1.02 billion at the end of March 31, up 117% from 2004's year-end numbers. And the interest rate on debt also rose year-over-year in the first quarter to 6.1%, from 5.6% in 2004. Jarden will finance the Holmes deal in part with $350 million in new debt.
Nevertheless, Jarden has managed its debt well so far. Despite the jump in debt, first-quarter interest expense as a percentage of revenue decreased year over year. As for the Holmes deal, Jarden believes the purchase will be at least 10% accretive to 2005 earnings, which it now puts at $3.23 per share. Further, the company expects to generate cash flow from operations of more than $250 million for the balance of this year. In light of these forecasts, Jarden's latest purchase looks like another winner.
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Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.