European plastic packaging giant RPC Group plc is buying large Chinese injection molder Ace Corp. Holdings Ltd. for up to $430 million, in a deal that RPC says will give it its first manufacturing presence in Asia and provide a platform for more acquisitions.
Beccles, England-based RPC announced May 1 that it will pay $301 million upfront in stock and cash, with potentially another $129 million by 2018 based on Ace meeting performance targets of 15.6 percent annual growth.
RPC said that currently 94 percent of its $1.76 billion sales are in Europe, but it noted that Asia’s rigid plastic packaging markets will have the world’s fastest growth, averaging 9.8 percent a year through 2018, compared with 2.7 percent in Europe.
“Our customers have been asking us for a long time to go into China,” said RPC CEO Pim Vervaat, in a conference call with analysts.
“There is a clear indication that this [acquisition] will open doors and we can follow customers,” Vervaat said. “It’s also a platform to possibly acquire in the region, although nothing is imminent I hasten to add.”
Hong Kong-based Ace had 2013 sales of $175 million, with five injection molding, assembly and tool making facilities in mainland China employing 3,300.
It’s one of China’s more prominent plastic molders in the packaging and precision molding sector. Its CEO Jack Yeung is also chairman of the Hong Kong Mould & Die Council.
Yeung will remain with RPC, and Ace will be run as one of six stand-alone units within RPC, Vervaat said: “Ace will continue to be an independent company led by Jack, reporting to me.”
“We do not acquire Ace to make me-too packaging in China,” he said. “We really go out there to follow our customers in higher value added packaging. And at the same time we will support Ace’s strategy.”
RPC said the deal will help Ace continue its global strategy and provide technology transfer to help its Chinese factories offset rising labor costs.
Vervaat pointed to a new injection molding facility that Ace opened in Hefei, Anhui province, last year as an example of how the combined companies can expand business.
“The biggest plant that Unilever has in the world is right next to the Ace plant in Hefei,” Vervaat said. “At this moment in time they only go with approved suppliers. Of course RPC is one. Ace isn’t. That’s just an example where we can open doors for Ace being part of the RPC group.”
Ace’s 2013 sales and earnings were up 25 percent and 38 percent respectively, RPC said.
Yeung said in the conference call that Ace’s sales have risen 10-15 percent a year for the last decade, as the company has targeted more technologically-oriented end markets, at first targeting mobile phones but later moving into automotive and packaging.
About 30 percent of Ace’s sales last year were in toolmaking.
Vervaat said that with Ace’s Hefei plant opening last year and a recent expansion of its factory in Zhuhai, Guangdong province, the company has room to significantly expand capacity.
Ace opened the Hefei plant in part to target the domestic Chinese market. It was its first factory outside China’s coastal manufacturing zones that have traditionally targeted export markets.
At the moment RPC said the Hefei operation only accounts for three percent of Ace’s sales, but it could give the companies a platform to target China’s local markets. Ace’s website said it had plans to triple the capacity and number of employees in Hefei.
RPC said Asia is currently about 27 percent of the global $135 billion rigid plastics packaging market, while Europe is 36 percent.
The company said it is paying 7.4 times Ace’s 2013 EBITDA of $41 million. Of the initial $301 million payment, $89 million will be new RPC shares for Ace shareholders.
Privately held Ace was started as a 30-person tool shop in Hong Kong in 1988 by Yeung’s father and a business partner.
The companies expect the acquisition to be completed by early June. RPC is also issuing $125.9 million in new shares to help fund the acquisition.