BRAMBLES' $US3.6 billion garage sale of assets might be over and the unification of its British and Australian shares complete but, behind the scenes, the board is believed to be looking at the purchase of US-based pallet business IFCO for $US1 billion ($1.2 billion).

As well, they are identifying a replacement for chief executive David Turner, who leaves the company on June 30.

Whoever gets the top job will have a profound effect on the future of the company.

The two internal candidates are chief financial officer Mike Ilhein, based in Australia, and US-based David Mezzanotte, the chief operating officer of Chep, which accounts for more than 80 per cent of the group's earnings base.

If Mezzanotte gets the top job, it makes sense to move the company to the US.

After all, less than 10 per cent of Brambles' group revenue comes from Australia and the group's two core businesses, Chep pallets and the Recall document records management business, are both based in the US. But as long as Don Argus is chairman, his well-known patriotism might slow this down. Argus is 68 and has been on the board since 1999.

His tenure is up for renewal next year.

A move might be triggered when Argus retires.

In the meantime, the group is beefing up its presence in the US and is believed to be looking at IFCO as a way to take out a competitor and lift its market share.

IFCO controls 12 per cent of all pallet issues in the US, well ahead of the next largest at 1 per cent.

The speculation follows a report from UBS on the prospect of a takeover by Brambles of IFCO.

UBS says IFCO's unique nationwide infrastructure of service centres and existing relationships with Chep's customers and retailers represent the ideal beachhead for a new pallet-pooling entrant.

IFCO is owned by private equity operator Apax and is under investigation by the US Immigration and Customs Enforcement agency regarding illegal alien employees, which hit profits in the last quarter.

If Brambles was to make a move, now is the time. But due to Brambles' current high return on invested capital, the acquisition would be ROIC dilutive.

Nevertheless, investors are starting to forgive companies for making acquisitions that might be dilutive - otherwise strongly performing companies such as Brambles are trapped in a situation where they can't buy anything for fear of dilution.

In the long term, expanding a business is in the shareholders' interest. Brambles could comfortably afford a purchase of a company the size of IFCO.

Indeed, Brambles has the potential to make a capital return of at least $US1 billion mid-year.

It is also generating more than $US500 million of cash flow annually and has a low debt.

This is known as a lazy balance sheet. Private equity operators love lazy balance sheets.

They also love companies that have a wide open share register, high barriers to entry, robust cash-flow generation and a strong balance sheet.

Brambles fits this description to a T. In comparison to overseas markets, the private equity industry in Australia is relatively immature. Industry estimates of the pool of private equity capital in Australia is just 1 per cent of the Australian listed equity market, compared with 5-10 per cent of overseas markets. Private equity interest in Coles and Qantas has highlighted the irreplaceable nature of the Chep global franchise.

It is worth noting that Brambles sold the Cleanaway and Industrial Services businesses at an enterprise value/EBITDA multiple of 15.5 and 16.5.

With the potential for the Qantas bid to topple, Brambles could be the next target.

Brambles would cost well over $20 billion but any private equity consortium could partly fund it by raising at least $US10 billion against the current balance sheet, as well as selling Brambles' Recall business, which contributes about 16 per cent of group revenue and 14 per cent of earnings.

The sale of Recall would raise at least $US2.3 billion, based on a prospective earnings before interest and tax multiple of 20, and it would leave Brambles with one global business: Chep pallet and container hire.

Recall would have a ready-made buyer in Iron Mountain, which is the world's biggest records management business.

Iron Mountain made its first move into the Asia-Pacific region with the $US86 million purchase of Pickfords Records Management in Melbourne.

Last June, it bought the data protection services business DigiGuard.

At the time of the acquisition, Iron Mountain issued a press release saying: "Iron Mountain is committed to taking a leadership position in Australia and New Zealand .. We will continue to build our operations here and expand our portfolio of solutions for both local and global customers."

Brambles has undergone a massive restructuring on outgoing chief executive David Turner's watch. Besides selling most of its operations and raising $US3.6 billion, it has collapsed its dual-listed structure, and in the process cut its staff.

Turner will leave on a high. Since he was promoted to chief executive in September 2003, Brambles' share price has more than tripled to $13.25.

His mandate was to rectify an array of problems, including the loss of millions of pallets, a slump in profits and investor concerns about its global strategy.

Adele Ferguson works for CT Financial, a subsidiary of Crosby Textor. The views expressed here are Ferguson's alone.