Wednesday 18 September 2019

Kingspan to lift debt with €700m Belgian bid

Recticel offer a 'smart move'

Big spender: Kingspan CEO Gene Murtagh has led European expansion
Big spender: Kingspan CEO Gene Murtagh has led European expansion
Ellie Donnelly

Ellie Donnelly

Kingspan will likely use a mix of existing cash reserves and debt to fund a proposed €700m acquisition of two divisions of Belgian group Recticel.

The deal would tighten Kingspan's grip on the European insulation market, adding Recticel's manufacturing units in Belgium, France, Britain and Slovenia.

The company declined to say how it will fund the deal after confirming yesterday it had made an offer for the insulation and flexible foams division of the mattress manufacturing group.

However, analysts estimate that, should the deal go through, it will be funded through a mix of cash and debt equity.

If the deal goes ahead it is likely to nudge Kingspan's net debt to 1.6 times earnings on a pro forma basis, which is comfortably inside the Cavan-headquartered group's preference to keep debt below a multiple of two times its earnings.

In a brief statement Kingspan said it has already entered into an exclusive back-to-back agreement with a third party who will buy Recticel's flexible foams businesses, should the initial deal go ahead.

Recticel said the Insulation division had sales of €271.2m in 2018 and an adjusted EBITDA of €44.7m, and the Flexible Foams division had sales of €621.5m and adjusted EBITDA of €41.5m.

Shares in the business were trading up almost 4pc yesterday, while Recticel's shares were suspended, having jumped over 20pc in early trading.

Flor O'Donoghue, analyst at Davy Stockbrokers, said the potential deal looked like a "smart move" for Kingspan, which would not be considered out of the unknown.

"This is consistent with Kingspan's strategy, the group likes to consolidate markets," Mr O'Donoghue said. "This gives the business direct access into France, a region it is not in at the moment."

He added that there is "probably a lot of hurdles to be jumped" before any deal is finalised.

Recticel's flexible foam business had sales of €621.5m in 2018, while it reported earnings before interest, taxation, depreciation, and amortisation (ebitda) of €33m in the division.

Meanwhile its insulation business, which Kingspan will hold on to, had sales of €271.2m and ebitda of €44.7m for the year.

Last year Kingspan - which is headed by CEO Gene Murtagh - spent €472.3m on acquisitions, including Synthesia Group, its first manufacturing presence in Southern Europe.

In 2018, Kingspan generated record income of almost €4.4bn and trading profit was €445.2m for the year.

Irish Independent

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