MACFARLANE Packaging has made its third acquisition of the year with the addition of Nelsons for Cartons and Packaging for £6.75 million.
The deal has been funded by a £5.8 million share placement, which saw 10,000,000 shares placed at 58p, representing a 4.1 per cent discount on Monday’s closing price.
Leicester-based Nelsons turned over £7.9 million last year with an operating profit of £800,000. The move will increase Macfarlane’s presence in the shelf ready packaging (SRP) sector.
The acquisition – described by Macfarlane Group chief executive Peter Atkinson as “another significant step forward in our growth strategy” – follows the addition of Colton Packaging in April and the packaging business of Edward McNeil in May.
A demand for shares led to the finance being raise through the placement, said Mr Atkinson. “We could have funded it through debt, but there’s been demand from existing and potential shareholders to get the opportunity to take a stake in Macfarlane,” he said.
Mr Atkinson said around 100 packaging businesses across the UK had revenue under £10m, and of those around 30 fitted Macfarlane’s target profile.
In fact, the top 10 distributors hold a combined 53 per cent of the packaging market. Macfarlane is market leader with about 20 per cent.
“Our strategy is to grow organically and supplement that with targeted acquisitions,” he said. “We’ve created a library of companies we’re attracted to and Nelsons was one of those.
“It’s about consolidating the space and using it as an opportunity to build our own business.”
Macfarlane aims to build group revenues to £200m over the next three years. In 2015, revenue was £169m.
Mr Atkinson said Nelsons was a good business with a strong franchise in the Midlands area. “We’re not well represented in SRP, so we will look to grow that through Nelsons and utilise it through the Macfarlane network.”
Nelsons customers in this area tend to be small and medium fast moving consumer goods (FMCG) companies.
“We’re not trying to target mainstream FMCG, this is more local and regional suppliers,” said Mr Atkinson.
Nelsons will continue to trade under its own name, because Mr Atkinson said the companies that have come into Macfarlane ownership are known brands, and “it’s important for them to retain that for as long as necessary.”
The last acquisition to transition into part of Macfarlane was Online Packaging, which was acquired in 2008 and transitioned at the end of 2015.
“Nelsons is an important local brand so it’s important we don’t dispose of that and actually take advantage.”
Of its acquisitions, Mr Atkinson said 70 per cent have come as owners seek retirement and 30 per cent who wish to expand but need the backing of a company like Macfarlane – Nelsons falls into the latter category.
Mr Atkinson said he would be surprised if there were further acquisitions this year, explaining that the business was weighted to the second half, because of e-commerce activity, and so the focus was on ensuring the business managed its way through the peak period. “I think any more announcements will be in 2017,” he said.
In May, the company described its market as subdued as it reported revenue up three per cent. That was still very much the case, said Mr Atkinson. “Existing customer demand continues to be subdued, new business is performing well but it’s taking a bit more time to get new customers to the finishing line, so the addition of acquisitions gives us that top line boost that continues the momentum while the existing business is a bit subdued because of everything that’s going on in the UK and wider world economy.”
Mr Atkinson said the main impact of Brexit in the short and medium term was on raw material prices being influenced by the weak pound. “Other that, we’re not seeing anything different,” he added.
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