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March 19, 2013 2:52 pm
The FTSE 250 company on Tuesday said that it had snapped up Contego Healthcare – a maker of cartons, leaflets, labels and printed foils for blister packs for the pharmaceutical sector – in a deal that values the privately held packaging group at £160m.
“This company sits very nicely in our strategy. It is a clean business, well run, well invested, no debt and no pension issues,” said Colin Day, Filtrona’s chief executive.
“We were underweight in Europe and we know how to make this business fit into our portfolio.”
Some analysts suggested that the purchase price of £160m appeared on the high side, given that Contego last year reported earnings before interest, taxation, depreciation and amortisation of £17.9m from sales of £103m – an enterprise value to sales ratio of about 1.6 times.
However, Mr Day said this multiple was on par with other acquisitions in the sector, and that the company’s position in the relatively stable pharmaceutical and healthcare markets warranted the purchase.
Filtrona part-funded the acquisition by raising £133m from investors through the placing of 21m shares, or about 10 per cent of its existing share capital.
“We went into this process with the belief that our key shareholders would agree that raising equity would be better than debt,” said Mr Day.
The remainder of the £160m purchase price will be funded through Filtrona’s existing debt facilities.
The Contego acquisition is Filtrona’s second in as many months, following the February buyout of Ulinco, a Swedish distributor of plastic protection and finishing products.
The purchases are part of an effort by Mr Day to revamp Filtrona, which was spun out of outsourcing group Bunzl seven years ago.
Under Mr Day – who spent more than a decade as chief financial officer at consumer goods group Reckitt Benckiser – Filtrona’s shares have risen by almost 50 per cent over the past year, as the group broadens its focus beyond its traditional market as a maker of cigarette filters.
The company produces a range of moulded plastics, self-adhesive tear tape, fasteners and labels for the consumer and specialist packaging sectors, and the purchase of Contego will further expand its range into pharmaceuticals.
Filtrona is poised to change its name to further distance itself from its reputation as predominantly a maker of cigarette filters, after cutting its reliance on the sector to about one-fifth of total revenues.
Filtrona was advised by Deutsche Bank. Shares in Filtrona rose 3.3 per cent to 684p.
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