Irish paper-based packaging producer Smurfit Kappa has agreed to acquire corrugated packaging manufacturer Bates Container for an initial investment of $150m.
Bates makes corrugated packaging and provides its services to the Texas region. The company needs about 135,000 tonnes of containerboard every year which will be supplied by Smurfit Kappa Orange County's (SKOC) containerboard mill in Dallas.
After the initial investment, there will be a further deferred payment of $7.5m.
The acquisition is subject to the customary regulatory approval and is expected to be completed in the fourth quarter of 2014. The acquisition will be funded from existing cash reserves.
Currently, Bates employs about 320 people and its pro forma 2014 EBITDA is expected to be $18.5m. It has also identified synergies of $11.5m which the company hopes to deliver within 24 months of the completion of the acquisition. Including the synergies, the transaction will carry a pro-forma multiple of 5.25 times EBITDA.
Smurfit Kappa Group COO Tony Smurfit said: "This acquisition fits perfectly with our integrated model, complementing in a significant way the successful integration of SKOC which was acquired in December 2012 and providing us with substantial scope for further synergies in both businesses.
"These synergies will be primarily delivered through additional integration of the containerboard needs of Bates into SKOC's 350,000 tonnes recycled containerboard mill, with additional savings expected through a range of operational efficiency measures. Importantly, the Group's enlarged packaging footprint in the US will further enhance SKG's capacity to provide innovative, insight-led and value enhancing packaging solutions to both current and prospective customers".
Speaking about the acquisition Smurfit Kappa Group CEO Gary McGann said: "The transaction reflects our continued focus on the accretive growth of our operations in the Americas and the combination of SKOC and Bates will increase our market presence and provide us with higher quality earnings in this region."
