Business Irish

Sunday 17 December 2017

Smurfit Kappa forks out $157m for second US acquisition

Gary McGann, CEO of Smurfit Kappa Group. Photo: Mark Condren
Gary McGann, CEO of Smurfit Kappa Group. Photo: Mark Condren
John Mulligan

John Mulligan

Irish packaging group Smurfit Kappa has agreed to pay up to $157.5m (€123m) to buy a Texas firm, marking its second acquisition in the United States.

Smurfit Kappa is buying Bates Container, paying an initial $150m and a deferred consideration of up to $7.5m. The purchase will be funded from cash reserves.

Bates Container makes corrugated packaging and requires about 135,000 tonnes of container-board a year, most of which will now be supplied by the Irish company's Smurfit Kappa Orange County operation in the US, helping to generate synergies for the group totalling $11.5m (€9m) within two years. Smurfit Kappa Orange County has a recycled container board mill in Dallas.

Smurfit Kappa said pro-forma earnings before interest, tax, depreciation and amortisation (EBITDA) this year at Bates Container is expected to be $18.5m (€14.5m).

Bates Container generated revenue of $150m last year and employs 320 people across four sites.

Smurfit Kappa chief executive Gary McGann said the deal reflected the company's "continued focus on the accretive growth" of its operations in the Americas.

Chief operations officer Tony Smurfit said it the acquisition "fits perfectly" with the group's integrated model.

Analysts were positive about the buy, with David O'Brien at Goodbody Stockbrokers saying it is well within Smurfit Kappa's financial capabilities.

Smurfit Kappa executives have previously said that the company could comfortably complete acquisitions worth about €300m a year without putting any pressure on its metrics.

Mr O'Brien said the Bates Container deal will add about 2pc to Smurfit Kappa's group EBITDA on an annualised basis.

He said it "highlights the ability of Smurfit Kappa to source and execute value accretive deals".

Barry Dixon at Davy Stockbrokers said the acquisition "made more sense than a [share] buyback" for Smurfit Kappa given that once synergies have been secured, the deal multiple is "well below" Smurfit Kappa's own trading multiple.

"This looks like a good use of the company's capital and demonstrates its move to expand its business following a prolonged period of deleveraging," he said.

In 2012, Smurfit Kappa agreed to pay $340m (then €260m) to buy California-headquartered Orange County Container Group.

Orange County operates eight packaging facilities in northern Mexico and also has a two such facilities in southern California.

Smurfit Kappa generated revenue of €7.95bn last year and EBITDA of €1.1bn.

Irish Independent

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