Private equity fund Littlejohn & Co. LLC is buying specialty packaging firm Intertape Polymer Group Inc. of St. Laurent, Quebec, for $500 million.
The deal, announced May 2, follows the company's announcement last year that it would explore alternatives.
``We've run a very extensive process,'' Intertape Chairman Michael Richards said in a May 2 conference call to discuss the transaction and first-quarter earnings. ``We've been through everything. This is the shareholders' best opportunity for liquidity.''
Intertape has been working to restructure its business during the past year, according to its 2006 annual report. Throughout 2006, it experienced declining sales volumes and narrowing margins compared with 2005. During 2006, Intertape exited several unprofitable customer accounts and streamlined its product offering, which resulted in a 40 percent drop in sales.
Some of the changes included importing general-purpose acrylic tapes, but continuing to manufacture value-added acrylic tape, and closing plants in Brighton, Colo., and Piedras Negras, Mexico.
Intertape reported a loss of $600,000 for the first quarter of 2007, compared with a loss of $10 million for the same period in 2006.
Richards said the deal with Littlejohn requires approval from two-thirds of Intertape shareholders and approval by the Superior Court of Quebec. If authorized, the transaction should close in the third quarter.
``The board believes the offer represents fair value,'' Richards said in response to questions from analysts about the deal valuation of 8½ times earnings before interest, taxes, depreciation and amortization.
Intertape interim Chief Executive Officer Dale McSween said the company also saw rising costs for polyethylene and polypropylene during the first quarter.
``This trend is forecast to continue through the second quarter and could exert pressure on our gross margins for the period,'' he said.
Littlejohn, which is based in Greenwich, Conn., is headed by Angus Littlejohn and is known as a middle-market buyout specialist with a focus on operational improvements. Littlejohn officials declined comment.
Littlejohn's investments in the plastics industry included the 2001 purchase of Eliokem from Goodyear Tire & Rubber Co. Littlejohn sold the niche specialty chemicals maker last year to AXA Private Equity for roughly $166 million. During the five years that Littlejohn owned Eliokem, it added a production facility in China, restructured its operations and launched new products.
According to Littlejohn's Web site, Littlejohn acts as an agent of change and works with an acquisition's management to improve operations and invigorate marketing and product initiatives.
This deal is typical of a trend of publicly held companies being taken private by private equity firms.
``The plastics business has clearly been under performance pressure,'' said Colin Blaydon, director of the Center for Private Equity and Entrepreneurship at the Tuck School of Business at Dartmouth College, in a May 2 telephone interview. ``Private equity will get involved if it's a good price and relative to what they think the prospects are going to be going forward. If you get it priced right, and you can do something to improve it beyond what the public market expectations are, then it's a worthwhile investment.''
Intertape also has offices in Bradenton, Fla. The company is traded on the New York and Toronto stock exchanges.