Canadian media and printing conglomerate Transcontinental Inc. plans a huge expansion of its nascent plastics packaging business.
The Montreal-based firm announced April 2 that it agreed to buy Coveris Americas for US$1.32 billion. Coveris Americas recorded sales of US$966 million last year, making it one of the top 10 converters of flexible packaging and related products in North America.
The announcement came less than three weeks after Transcontinental closed on a deal to buy Multifilm Packaging Corp. of Elgin, Ill. The Coveris Americas acquisition would be its seventh deal in flexible packaging since it entered the field in 2014.
“This transaction crystallizes our strategic shift toward flexible packaging and solidifies our commitment to profitable growth,” stated Transcontinental Chairwoman Isabelle Marcoux in a news release.
The agreed purchase price is 10.3 times earnings before interest, taxes, depreciation and amortization. Coveris Americas had an adjusted EBITDA of US$128 million for the year ended Dec. 31.
“The acquisition complements and bolsters our existing product offering in several flexible packaging end markets, including dairy, pet food and consumer products,” explained Transcontinental President and CEO Francois Olivier in a news release. The deal will launch the Montreal firm into new and “attractive” end markets such as agriculture, beverages and protein products.
Coveris Americas makes rollstock, bags, pouches, coextruded films, shrink films, coated substrates, labels and related flexible packaging. The Chicago-based business runs 21 production facilities in the Americas, United Kingdom and Australasia. It employs more than 3,100, mainly in the Americas.
Plastics News data capture the film side of Coveris in North America. The data estimated Coveris' film sales in North America were $260 million last year, ranking it 31st among its peers on the continent. The data identified five film plants for Coveris in North America.
Coveris Americas is owned by Coveris Holdings SA of Senningerberg, Luxembourg, which in turn is owned by private equity Sun Capital Partners Inc. of Boca Raton, Fla.
Coveris Holdings will focus on its remaining three businesses: Rigid; UK Food & Consumer; and Europe, Middle East and Africa. These businesses logged sales of 1.4 billion euros (US$1.72 billion) and EBITDA of 132.4 million euros (US$162.9 million) in 2017.
“This sale will enable us to focus on our operations in Europe, where we are one of the largest players in the flexibles and rigid packaging market,” stated Coveris Holdings CEO Jakob Mosser in a news release.
“This supports our recent strategic focus on delivering high performance and sustainable packaging solutions for our customers in the food, pet food, medical and pharmaceutical markets.”
Coveris plans to use proceeds from the Americas sale to repay some of its debt.
Serving as financial advisors to Coveris Americas in the Transcontinental deal were Goldman Sachs & Co. LLC and Wells Fargo Securities. Kirkland & Ellis LLP was legal advisor.
The deal boosts Transcontinental's 2017 pro forma packaging sales to C$1.6 billion (US$1.23 billion) and EBITDA of C$210 million (US$162 million). That sales level represents about 48 percent of sales.
Transcontinental said the acquisition expands its best-in-class capabilities as well as film capacity. Coveris Americas complements Transcontinental's existing capabilities in printing, lamination, converting and extrusion. Notable are Coveris Americas' expertise in high-end blown film extrusion and cast-film extrusion.
Product lines will grow with Coveris Americas' barrier films, thermoformed films, shrink bags, cast nylon, multi-wall bags, banana tree bags, mulch films and coatings. The transaction ensures Transcontinental can source in house a portion of its film needs.
Coveris Americas brings to the table some 3,500 customers, many of which are key accounts with longstanding clients.
The deal extends Transcontinental's existing seven flexible packaging operations to include another 21 production plants in the United States, Canada, Ecuador, Guatemala, Mexico, the United Kingdom, New Zealand and China. Economies of scale will help Transcontinental achieve annual cost synergies of about US$20 million over two years following completion of the purchase.
Coveris Holdings put its Americas business up for sale late last year when it realigned into four business units. At the same time it also said its Rigids business was for sale. It consolidated the Rigids business earlier last year when it closed a personal care packaging injection molding facility in Anderson, S.C., and moved some of the work to Excelsior Springs, Mo. Coveris Holdings started in 2013 as Exopack Holdings SA following the combination of five previously separate companies.
Transcontinental will finance the deal with cash on hand and committed financing in term loans from Canadian banks CIBC and Scotiabank. BMO Capital Markets and J.P. Morgan Securities LLC acted as financial advisors for the Montreal firm. Stikeman Elliott LLP advised on Canadian law and Morgan, Lewis & Bockius LLP advised on U.S. law. Transcontinental was established 42 years ago.
The parties expect the deal to be finalized in the third quarter of Transcontinental's fiscal year ending Oct. 31.
