Reaction: Smurfit Kappa enters Brazilian packaging market with $200m double acquisition

By Jenny Eagle

- Last updated on GMT

Related tags Smurfit kappa São paulo Brazil

Tony Smurfit
Tony Smurfit
Smurfit Kappa Group (SKG) has acquired two privately owned integrated paper-based packaging businesses, Industria de Embalagens Santana (INPA) and Paema Embalagens (Paema), for €186m ($200m) in Brazil.

The combined operations have three recycled containerboard mills with a total capacity of 210,000 tonnes and four corrugated facilities covering Rio and Sao Paulo regions and the south of the country.

'Lower multiple than other deals in the sector'

The net assets of INPA and Paema at September 30, 2015 were €30m and €6m respectively. The two acquisitions were reportedly made on a lower multiple than other deals in the sector.

Tony Smurfit, CEO, SKG, said the acquisitions will extend its reach into a strategically important market and build on its geographic diversity.

“We look forward to welcoming the experienced teams into the Smurfit Kappa Group,” he said.

“We are confident their expertise and the high quality of their asset base will provide us with a strong entry point into the Brazilian market and, as the leading pan-regional operator in Latin America, further strengthen our service offering to our existing international customers.”

According to the FinancialTimes, SKG has waited years to enter Brazil but was reluctant to pay the high acquisition fees demanded. It chose to buy now as the time was right following the country’s economic downturn, due to falling Government revenues and fixed expenditures.

Transaction completed December 2015

This has widened the primary deficit, the budget balance before interest payments.

SKG’s Latin American operations are in Colombia, Venezuela and Argentina. Its Americas operations, which include plants in the US and Mexico, had revenues of €1.9bn in 2014, and earnings before interest, tax, depreciation and amortisation of €305m. Globally, the group had 2014 revenues of €8bn and pre-tax earnings of €1.1bn.

The transaction was completed at the end of December 2015 and will be immediately earnings accretive. The consideration was funded from the Group’s existing liquidity, comprising primarily cash resources together with the existing committed credit facilities.

The combined business employs over 1,700 people and the Group expects to generate synergies of approximately €6m to be delivered by the end of 2017, primarily through operational improvements and supply chain optimisation as the businesses are integrated.

Post synergy 2015 EV/EBITDA multiple of the combined business is expected to be 6.3 times.

Some analysts said Smurfit was justified in waiting for the right moment to enter Brazil. Barry Dixon, at Davy stockbrokers, said the €186m price for the two businesses “looks reasonable” compared with other recent paper and packaging acquisitions in Brazil.

Pouch-Up: SIVAL fruit & vegetable trade show

In other news: Smurfit Kappa will exhibit packaging for apple juice at the SIVAL fruit and vegetable trade show in Angers, France from January 12-14.

The apple juice market in France and Europe has been growing in recent years and Smurfit Kappa has launched products including Pouch-Up to the market.

The Pouch-Up is a young, modern and innovative free-standing packaging for liquid products and particularly for apple juice since we have developed special technology for hot filling​,” said Florence Decock, product manager, Pouch-Up, Smurfit Kappa Bag-in-Box.

It has a long shelf-life, six to eight weeks with guaranteed quality and organoleptic properties of the juice thanks to the film and the Vitop tap technology. It is user-friendly, easy to open, and environmentally-friendly​.”


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