Deal Reporter
DS Smith (LON:SMDS), the UK-based provider of corrugated and specialist plastic packaging, expects the fragmented state of its industry in Europe to provide opportunities, CEO Miles Roberts said Thursday.
The CEO noted on the company's 4Q15 earnings call that the DS Smith’s customers had steered it towards companies acquired in the past year.
“We like to say we are the consolidator of choice,” Roberts said. “A lot of these are family-owned companies, some of them are owned by venture capital. It is showing how we can work with a variety of owners and a variety of cultures; consolidator of choice driven by customer demand.”
He noted DS Smith’s purchase of Duropack and its first Spain-based corrugated venture, Andopack, as examples. The CEO also referred to the company’s announcement earlier Thursday of its agreement to buy Spain-based Grupo Lantero’s corrugated activities.
“Not only do we think we can grow this business quite strongly organically, but it’s also with 10% market share now, it’s an excellent platform for further acquisition-led growth,” Roberts said regarding the latter asset.
Beyond Europe
In the Q&A session, JPMorgan Cazenove analyst Alexander Mees asked the CEO at what point DS Smith would be ready to make some material acquisitions outside of Europe. Roberts said the company asked itself the same question, noting that it had a strong customer pool that it was exploring.
Roberts added that its clients had been surprised by the effect DS Smith’s services could have on markets beyond Europe and the potential improvements that could be seen.
“[B]ut I think we really do have to see just how well it goes, competitor response, et cetera. So, we’ll keep a very, very watching brief on it,” he concluded.
DS Smith has been active on the buy and sell side in the past year, including the disposals of its Scandinavian Foams business and Nantes paper mill, as well as the purchases of Kaplast and Italmaceri.
The company has agreed to pay EUR 190m for the Lantero deal, and spent approximately EUR 300m on Austria-based corrugate boards manufacturer Duropack, which closed earlier this month. Andopack was bought for GBP 35m (EUR 49m) in November last year, while a 50% stake in Italmaceri was acquired for an undisclosed sum in July.
DS Smith announced in September that its Plastics division had acquired Croatian injection moulding company Kaplast. Deal terms were not disclosed.
DS Smith’s corrugated packaging operations are supported by a recycling business that collects used paper and corrugated cardboard. These are then used to make its corrugated packaging. The company also designs and manufactures certain types of plastic packaging.
In 2012, the company acquired Sweden-based SCA’s packaging division for around GBP 1.3bn. This was its most sizeable deal for the past decade, with its other acquisitions typically valued less than GBP 250m.
DS Smith used Credit Suisse and JPMorgan Cazenove for the SCA transaction. The latter advisor was also used on an earlier France-based acquisition.
Allen & Overy has been used for most of DS Smith’s acquisitions in the last 10 years, including SCA, according to the Mergermarket M&A database. DS Smith has a long standing relationship with Allen & Overy, according to the law firm's website, with the company naming the law firm as its solicitor in its 2014 annual report. Sumeet Chadha, legal counsel at DS Smith, is a former associate at Allen & Overy.
Eversheds provided the company with employment and pensions support on the SCA transaction. The firm was used in the same capacity in 2011 for DS Smith’s sale of Spicers, its office products wholesaling division.
On the call, DS Smith reported net debt of GBP 651m, resulting in a net debt to EBITDA ratio of 1.49x. The company has a market capitalisation of GBP 3.7bn.