WestRock Company (NYSE:) concluded its previously announced acquisition of Multi Packaging Solutions International Limited (NYSE:) in a bid to strengthen its differentiated portfolio of paper and packaging solutions. The acquisition is expected to be immediately accretive to the company’s financial results, both on an earnings per share basis and cash flow basis. Further, it will also open up significant opportunities for margin expansion and synergies.
Financials of the Deal
WestRock had made the announcement in Jan 2017 and declared that it will acquire the leading global provider of print-based specialty packaging solutions for $18.00 per share in cash and the assumption of an estimated $873 million in net debt. The transaction valued Multi Packaging Solutions (“MPS”) at $2.28 billion which represents a trailing 12-month adjusted EBITDA multiple as of Sep 30, 2016, of 9.6 times, and 7.1 times including anticipated synergy and performance improvements. WestRock had stated that the transaction would be financed through a combination of cash and existing credit facilities.
Why Multi Packaging Solutions?
MPS has a global presence, catering to customers from 59 locations across North America, Europe and Asia. It boasts of a differentiated product offering including premium folding cartons, inserts, labels, and rigid packaging. It has a diverse, blue chip customer base, primarily in the growing consumer and healthcare sectors. The company generated revenues of $1.6 billion and adjusted EBITDA of $237 million, on a trailing 12-month basis as of Sep 30, 2016.
Westrock Company Price
Westrock Company Price | Westrock Company Quote
Benefits to WestRock
The healthcare and consumer markets that includes spirits, confectionary, beauty and cosmetics, contributed 90% of MPS’ revenues in fiscal 2016. MPS’ strong complementary print, graphics and design capabilities will augment WestRock’s presence in these growing markets. In addition to broadening WestRock’s differentiated product portfolio, the acquisition will significantly strengthen its presence in attractive markets. Combined with new applications and new technologies, WestRock’s brands will get a competitive edge.
Further, it will create opportunities for operational synergies and margin expansion. MPS is one of the largest non-integrated consumers of bleached paperboard in the world and has an annual consumption of around 225,000 tons of paperboard in its production facilities. The WestRock-MPS combination will create opportunities to integrate between 35% and 45% of this consumption which in turn will generate approximately $85 million in run-rate synergies by the end of fiscal 2019.
Last month, WestRock entered into a definitive agreement to acquire certain operations of U.S. Corrugated Holdings, Inc., a large independent manufacturer of corrugated products for packaging and displays. The buyout will enhance WestRock’s capabilities to serve customers across the Midwest. Further, the deal will improve the margins of its corrugated packaging business. Moreover, the transaction will provide significant synergy opportunities through containerboard integration, increased production and improved performance.
WestRock continues to benefit from its acquisition strategy. The integration of the volume from the buyout of the Carolina product line, the Cenveo Packaging acquisition and volume incorporation from the merger will prove conducive to growth.
Additionally, WestRock will gain from higher volumes, favorable mix and productivity, and focus on execution of its capital allocation strategy. Driven by these factors, the stock gained around 42% in the past one year, outperforming the Zacks categorized Paper and Related Products sub-industry which recorded 23.5% growth.
WestRock currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the same sector are Mondi (LON:) plc MONDY and Fibria Celulose S.A. (NYSE:) . Mondi plc has an estimated long-term earnings growth rate of 6% and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Fibria Celulose carries a Zacks Rank #2 (Buy) and has an estimated long-term earnings growth of 18.42%.
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Fibria Celulose S.A. (FBR): Free Stock Analysis ReportWestrock Company (WRK): Free Stock Analysis ReportMONDI PLC UNS (MONDY): Free Stock Analysis ReportOriginal postZacks Investment Research