Krones acquiring Netstal from cash-strapped KraussMaffei for $183M

German packaging and bottle machine manufacturer Krones AG is acquiring Swiss injection press supplier Netstal Machinen AG for 170 million euros ($183.7 million).

The seller is Germany's financially struggling KraussMaffei Technologies GmbH, which lost at least 2.55 billion RMB ($359.3 million) and as much as to 3 billion RMB ($422.7 million) in 2023, according to a “pre-loss announcement” issued Jan. 31.

Publicly traded on Shanghai's stock exchange, KraussMaffei has been majority owned by China National Chemical Corp. since 2016.

KraussMaffei’s pre-loss statement, released two days after the Netstal deal was announced, does not directly address the reasons for selling to Krones, but it paints a picture of deepening financial pressures on the company.

KraussMaffei’s losses in 2023 surpass the red ink of 2022 despite a series of reform measures to optimize the organization, such as relocating a factory, consolidating services and streamlining jobs.

The slowdown in global economic growth, international geopolitical conflicts, high interest rates in the United States, weak market demand for some products and intensified competition contributed to the company’s financial losses, the announcement said.

KraussMaffei officials have always denied speculation that Netstal was for sale, but now a deal is moving forward to shed the Swiss company that sold its first injection molding machine in 1945 but has business roots going back to 1857.

These days, Näfels-based Netstal builds injection molding machines that produce caps and PET preforms for the beverage, medical and thin-wall packaging markets.

The company generated sales of 200 million euros ($215 million) with more than 500 employees in 2023, according to a news release about the pending deal.

Netstal has been part of KraussMaffei since 1992 and was called KraussMaffei High Performance AG until about three years ago, when its name was changed back to Netstal.

At the time, the name change raised questions about whether a sale might be in the works, and in 2023, Plastics News reported on a deal to sell Netstal to another company. But Netstal and KM officials always denied that it was for sale.

Now Netstal will become part of Krones, which posted 2022 sales of 4.2 billion euros ($4.5 billion), surpassing 4 billion euros for the first time after order intake surged 34 percent compared with the prior year.

Netstal has been a strategic partner of Krones in the past and will benefit the acquiring company several ways despite its profitability being “below the Krones Group level,” the release said.

Krones expects to boost Netstal sales in coming years with the acquired company being part of its segment for filling and packaging technology.

The release said Netstal will retain its business responsibility within Krones while benefiting from the international setup and scale of Krones.

The acquisition will give Krone’s closed-loop technologies required for injection molding preforms, producing PET containers and filling, packaging and recycling.

In addition to complementing Krones’ business for beverages, the release said Netstal’s medical and thin-wall packaging segments will support the Krones strategy to diversify into the medical and pharmaceutical markets as well as food and home personal care applications.

Plans for the eventual sale have been rumored since August 2021, when KraussMaffei announced that KraussMaffei High Performance AG would become an independent unit with its name reverting back to Netstal, effective Oct. 1, 2021.

At the time, KraussMaffei CEO Michael Ruf said the change took into account "the wishes" of customers wanting the Netstal brand and Netstal organization under a common name.

However, in an online meeting held Sept. 10, 2021, an official with Cham, Switzerland-based Benpac Holding AG told employees of Vaughan, Ontario-based Niigon Machines Ltd. that Benpac had acquired the Netstal business and that Niigon would be next.

Neither deal materialized, however, and on Sept. 24, 2021, Niigon filed for bankruptcy and all of its employees were immediately terminated.

KraussMaffei officials have denied that there was ever a plan to sell Netstal, even after a profit warning published Jan. 30, 2023, on the Shanghai Stock Exchange.

While the parent company, state-owned China National Chemical Corp., saw sales increase overall, its "important subsidiary," KraussMaffei Group Ltd., experienced increased losses, the profit warning stated.

KraussMaffei lost between $230 million (RMB 1.58 billion) and $275 million (RMB 1.89 billion), according to preliminary estimates for the audited 2022 annual report. The figures included a goodwill impairment of at least $108.6 million.

When asked in March 2023 if a failure to sell the unit was a contributing factor to KraussMaffei's financial issues, a company spokesman responded: "KraussMaffei and Netstal are a good match. We confirmed that many times during the last years, also during K 2022 last October."

Now Krones will buy Netstal for 170 million euros ($183 million), according to a share purchase agreement.

Krones will finance the transaction with existing liquid funds, but also may use partial debt financing. The deal is expected to be complete in the first half of 2024.

The profit warning published Jan. 31, 2024, on the Shanghai Stock Exchange once again said losses mounted for its "important subsidiary," KraussMaffei Group Ltd.

Because of international conflicts, high interest rates and other factors, 2023 was a tough year for many machine builders.

“The high-end injection molding market has been in a downturn, and KM Group's new orders have declined year on year, superimposed on the supply from Europe and the United States,” the profit warning said. “The cost of chain procurement is high, and the capacity advantage of the new factory after the relocation is not fully utilized, resulting in the gross profit margin of the product is lower than expected.”

A goodwill impairment test will be done. Preliminary projections put the provision at 1.15 billion RMB to 1.25 billion RMB ($160 million to $180 million).