“Most important is the synergies that get created with this acquisition. First there are complementary customers, technologies and product offerings. Nine out of the top 10 Avintiv customers are also substantial Berry customers today,” Rich said.
The combined companies will be able to help those shared customers, which includes 3M, Clorox, Covidien, Kimberly-Clark and Procter & Gamble, to reduce their processing and assembling times, Rich said.
“If you think about the fact they're making absorbents and we make the back sheet, those have to get together somehow,” he explained. “If you think about disinfectant wipes, where they have a big position, we've got some really innovative dispensing technologies. And, that's just the edge of it. I think while we haven't put a number on it, the ability to create really differentiated, innovative product solutions for our customers is probably what excited [Avintiv CEO] Joel Hackney and me the most.”
The sourcing scale and procurement of resins will be another benefit with both companies using a lot of polypropylene. Rich said Berry is among the largest molders of PP in the world and Avintiv is the industry leader in PP non-woven fabric. PP makes up 70 percent of Avintiv's spending on raw materials.
“Combined we will source and convert nearly 2 billion pounds of polypropylene per year,” Rich said.
The deal also expands Berry's global footprint and reach into emerging markets. Avintiv has 23 locations in 14 countries. Fifty-six percent of Avintiv sales are in Europe, the Middle East, Africa, South America and the Asia Pacific regions compared to 44 percent in North America.
Rich said Berry is expanding its products and international presence at a time when the $30 billion global non-woven fabric industry is expected to grow 9.1 percent in Asia Pacific, 5.4 percent in North America, 4 percent in South America and 3.8 percent in Europe.
Berry is paying a purchase multiple of 6.9 times adjusted EBITDA, including achievable synergies put at $50 million, according to a company presentation about the deal. The transaction is scheduled to close by the end of 2015.
“We will generate significant value for our shareholders and truly transform Berry into the world leader in plastics packaging and engineered specialty materials,” Rich said. “We're excited to grow with customers we already know and serve. This is truly a transformational day for our company.”
Quarterly results
The agreement was announced July 31, ahead of a quarterly conference call in which Berry reported record operating earnings before interest, taxes, depreciation and amortization (EBITDA) of $219 million for the quarter ended June 27.
That's a 17.6 percent margin, compared to 16.3 percent margin in the same quarter of 2014.
Berry had net sales of $5 billion in 2014, doing 52 percent of its business in rigid packaging followed by 29 percent in engineered materials and 19 percent in flexible packaging.
For its fiscal third quarter, Berry officials said sales of its insulated Versalite brand cups remain strong and the company continues to add capacity in a sprint mode. Designed as an alternative to expanded polystyrene, the cups are being used by more than 500 Dunkin' Donuts stores, Subway, 7-Eleven, Princess Cruise Lines and Cumberland Farms stores.
