MACFARLANE Group has made its largest ever acquisition with the capture of Nottingham-based Greenwood Stock Boxes for £16.75 million.
The cash and shares deal, which will be part-funded by an oversubscribed £8m share placing, is the seventh acquisition for Macfarlane since 2014, reinforcing its strategy of bolting on supplementary businesses in what remains a fragmented industry, while pursuing organic growth.
Greenwood is based in Nottingham, with a small manufacturing facility in Melton Mowbray.
The company primarily distributes corrugate packaging, with a particular focus on the clothing retail sector.
It is this specialism that led the company to become one of about 25 that were identified by Macfarlane as possible acquisition targets when its current strategy was implemented about five years ago.
Macfarlane said there was minimal customer overlap with its existing customer base but a major supplier overlap, meaning it could reduce costs as it extended its reach in the growing clothing sector of the wider e-commerce market.
“Macfarlane has some business in the clothing sector but it’s never been an area we’ve secured a focus on,” said Mr Atkinson. “Greenwood has made a real success of supplying protective packaging to the retail clothing sector so it brings to us a full range of clients in that sector along with a range of expertise and knowledge which we hope we will be able to build upon.”
Mr Atkinson said Greenwood’s clients include “a number of high- profile household name clothing retailers”.
About 22 per cent of Macfarlane’s business currently comes from e-commerce. Mr Atkinson said while the company doesn’t have a specific target for what this number should grow to, he expects to see it climb to more than a third of all revenue over the next three years.
The agreement will see Macfarlane acquire the business for more than nine million ordinary Macfarlane shares – along with £7.5m in cash and a cash earn-out of £3.25m after a year, subject to certain trading targets being met.
The board anticipates the acquisition will be earnings enhancing in the first full year of ownership.
The successful share placing aimed to raise £8m before expenses with shares available for 66p, representing a 1.1 per cent discount on Friday’s closing price.
Three significant shareholders in Macfarlane acquired shares through the placing, with Rights & Issues Investment Trust investing £335,697 to take its shareholding to 10.95 per cent; Hargreave Hale investing £550,000 to takes its holding to 10.27 per cent; and Milton Asset Management making the biggest move, taking its stake to 10.43 per cent with a £800,000 investment.
The placing shares rank on an equal footing with existing ordinary shares, including the right to receive all dividends and other distributions.
In its financial year to April 30, Greenwoods reported revenue of £14.1m, with earnings before interest, tax, depreciation and amortisation of £1.7m.
While primarily a packaging distributor, Greenwood also has manufacturing capability and a collection and baling service.
In the first half of 2017 Macfarlane grew sales by 10 per cent to £90m, with pre-tax profit growing by more than a quarter to £2.5m. The company said with the seasonal uplift in the second half of the year, as e-commerce peaks with the festive period, it was confidence expectations for the full year would be met.
In the last year the company has acquired Nelsons and Colton Packaging in England and Edward McNeil in Glasgow.
Mr Atkinson said the company was continuing to work towards picking up two or three companies per year from that pipeline of around 25 suitable target.
“This deal is at the top end of the range, which is £20m,” said Mr Atkinson, “But it fits well in the target group of opportunities.”
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