In the context of the acquisition announcement, SIG recently announced strong preliminary results for the full year 2021. Core revenue was Euro 2,047 million (approximately Rs 17,278 crore), representing a like-for-like increase of 6.6%1 at constant currency, exceeding the guided range of 4 – 6%. Adjusted EBITDA increased to Euro 571 million (approximately Rs 4,819 crore) with an adjusted EBITDA margin of 27.7%, compared with 27.4% in 2020. Free cash flow was Euro 258 million (approximately Rs 2,177 crore) compared with Euro 233 million (approximately Rs 1,966 crore) in 2020. At the AGM the Board of directors will propose an increase in the dividend to CHF 0.45 per share (2020: CHF 0.42 per share) to be paid out of the capital contribution reserve.
Acquisition of Scholle IPN
SIG has entered into an agreement to acquire 100% of Scholle IPN, a privately held company, for an enterprise value of Euro 1.36 2 billion (approximately Rs 11,479 crore) and an equity value of Euro 1.05 billion (approximately Rs 8,862 crore). The transaction will be funded through 33.75 million SIG shares issued from existing authorized capital and Euro 370 million (approximately Rs 3,123 crore) cash; the existing debt of Scholle IPN will be refinanced at closing. The transaction is expected to close before the end of the third quarter of 2022 subject to customary closing conditions.
This acquisition diversifies SIG’s exposure to growing and resilient end markets. SIG’s portfolio of market-leading sustainable food and beverage carton solutions will be expanded into bag-in-box and spouted pouches for retail, institutional, and industrial customers. SIG and Scholle IPN have many similarities and are highly complementary businesses in terms of systems and product offerings. The combination will unlock significant growth opportunities and value.
Founded in 1945, Scholle IPN is an innovator in sustainable packaging with a systems offering. It is the inventor of and global leader in bag-in-box (2l –1,500l capacity) and the number two in spouted pouches (50 milliliter – 500 milliliter capacity). The acquisition will therefore expand SIG’s portfolio into both larger and smaller formats. Scholle IPN is headquartered in the USA and has approximately 2,100 employees globally. Revenue in the twelve months to 31 December 2021 was Euro 474 million (approximately Rs 4,001 crore) with adjusted EBITDA of Euro 90 million (adjusted EBITDA margin c.19%)3. The USA accounts for around 55% of revenue and the acquisition will significantly increase SIG’s presence in this large and attractive market. It will also enable the expansion of the Scholle IPN portfolio into the emerging markets of Asia Pacific, Latin America, and Middle East Africa, where SIG has a well-established presence.
With this acquisition, SIG will be able to offer the most sustainable packaging solutions across a wide range of categories and product sizes. Growth in bag-in-box is being driven by the shift from rigid to flexible packaging which significantly reduces the amount of material needed to package the product. Scholle IPN has a longstanding focus on sustainability and on the light-weighting of both packaging and fitments. It is said to be a pioneer in the development of mono-materials which are designed for recycling. Joining together the R&D capabilities of the two companies will deliver more value to customers by advancing the development of material and aseptic technology to reduce carbon emissions and food waste.
Around 70% of Scholle IPN revenues are in food and beverages which will underpin the resilience already demonstrated by SIG’s business. The acquisition will enable SIG to build on its core strength in aseptic technology and to expand its use in both pouches and bag-in-box. It will also drive SIG’s expansion into new categories such as wine and water. Like SIG, Scholle IPN has developed long-standing customer relationships and the acquisition brings multiple cross-selling opportunities, as well as the potential for an enhanced service offering for the combined customer base. In addition, run-rate cost synergies of Euro 17 million (approximately Rs 143 crore) will be generated in areas such as procurement and manufacturing efficiencies.
Samuel Sigrist, chief executive officer of SIG, said, “The acquisition of Scholle IPN cements SIG’s position as a global leader in innovative and sustainable packaging for food and beverages. It is consistent with our strategy of geographic and category expansion accompanied by share gains in key markets. By delivering clear benefits for customers, consumers, and the environment, we will drive value for shareholders.”
Laurens Last, chairman, and owner of Scholle IPN, said, “This combination is compelling for our customers, who will benefit from our capabilities and expertise in the liquid packaging industry. I am excited about the future of the combined business, and I look forward to our joint innovation, with SIG further developing packaging substrates and solutions that are at the forefront of sustainability.”
The acquisition values Scholle IPN at an enterprise value of Euro 1.36 billion (approximately Rs 11,479 crore), equivalent to a multiple of 14.5x adjusted EBITDA for the twelve months ending 31 December 2021, or 12.2x adjusted for the annual run-rate synergies of Euro 17 million (approximately Rs 143 crore). An earn-out may be payable in three annual installments of up to Euro 89 million (approximately Rs 751 crore) annum for the years ending 31 December 2023, 2024, and 2025, contingent upon Scholle IPN outperforming the top end of SIG’s mid-term growth guidance of 4 – 6% per annum in the respective years. Earn-out payments for growth rates ranging from 6 – 11.5% per annum are subject to a pre-agreed ratchet structure.
The consideration for the equity value of Euro 1.05 billion (approximately Rs 8,862 crore) comprises 33.75 million SIG shares from existing authorized capital and Euro 370 million (approximately Rs 3,123 crore) cash, subject to customary closing adjustments. The existing debt of Scholle IPN will be refinanced at closing. Any potential future earn-out payment would be payable in cash. As a result of the share consideration, the current owner of Scholle IPN Laurens Last will become the largest single shareholder in SIG, with a pro-forma shareholding of 9.1% subject to a lock-up period of 18 to 24 months4.
Last will be nominated for election to the Board of directors of SIG at the forthcoming AGM on 7 April 2022. Ross Bushnell, chief executive officer of Scholle IPN, will join SIG’s Group Executive Board. The transaction is expected to be accretive to cash flow and adjusted earnings per share from the first full year after completion, adding to the strong and resilient financial profile of SIG, with above-market growth, best-in-class margins, superior cash conversion, and attractive dividends.
The financing of the transaction is secured via an acquisition bridge facility with a maturity of 18 months which is expected to be partially refinanced through an equity issuance of approximately Euro 200-250 million (approximately Rs 1,688 – 2,110 crore), implying pro-forma (31 December 2021) leverage of around 3.25x (net debt/EBITDA).
Following the acquisition, SIG will maintain mid-term revenue growth guidance of 4 – 6% per annum at constant exchange rates. The combined business (including Evergreen Asia) has scope for margin expansion and the adjusted EBITDA margin is expected to rise above 27% in the mid-term. Net capital expenditure as a percentage of revenue is expected to be 7 – 9%. The company will maintain its progressive dividend policy with a payout ratio of 50 – 60% of adjusted net income. The commitment to a net leverage ratio of towards 2x is also maintained, with an expectation of net leverage around 2.5x by the end of 2024.
UBS Investment Bank acted as exclusive financial adviser to SIG; Latham & Watkins and Advestra acted as legal advisers to SIG.
1 Like-for-like including MEA, at constant currency
2 At current US$/Euro exchange rate
3 Unaudited. At 2021 average US$/Euro exchange rate