DS Smith has reached agreement to sell its plastics division to Olympus Partners, a US private equity firm based in Stamford, Connecticut (USA). The transaction is subject to regulatory approvals, with completion expected by the second half of the year. The $585m (£445m) price tag on the deal represents a multiple of 9.9x EBITDA based on the past 12 months to 31 October 2018.
The sale is part of the London-headquartered packaging firm's strategy to shift towards sustainable packaging, the company said, adding that it expected net cash proceeds after taxation, transaction adjustments and expenses of approximately $524.96 m (£400m). Next to a substantial exceptional gain, the deal is also expected to be marginally EPS (earnings per share) dilutive.
"The transaction is attractive both financially and strategically for DS Smith as, together with the acquisition of Europac, we reinforce our position as a leader in sustainable packaging with a clear focus on our fibre-based business,” DS Smith group chief executive Miles Roberts said.
“My colleagues in the plastics division have worked hard to build the business into the success that it is today, and that quality has been recognised by Olympus Partners.”
The plastics division comprises DS Smith's flexible plastics, rigid plastics and foam products, and accounts for around 6% of group revenue. It reported a profit before tax for the 12-month period to 31, October 2018 of $36m (£28m).
DS Smith said in December 2018 that it was exploring options for its plastics division, including a potential sale.
Today's sale follows the completion of the company's acquisition of Spanish rival Europac in January, a deal that was financed by raising $1.3m (£1m) from issuing new shares, plus a new debt facility of 740 million euros. According to DS Smith, the acquisition of Europac represented ‘an important next step in strengthening its paper and packaging positions in the Iberian Peninsula and France in support of its multinational customers' requirements'. However, the deal pushed the company's debt level to what some thought was an uncomfortable high.
The cash proceeds from the sale of the plastics division are expected to be used to reduce the financial gearing of the company, ‘in line with our medium-term target of net debt / EBITDA at or below 2.0x', DS Smith said.