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Tuesday, Dec 6, 2022
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Avery Expands Euro Label

Avery Dennison Corp. plans to further expand into Europe with the pending $226 million acquisition of Mactac, a manufacturer and distributor of pressure-sensitive materials. Avery, a Glendale-based label and packaging materials supplier, purchased Mactac from private equity firm Platinum Equity in Beverly Hills. But there’s one important condition – the deal only includes Mactac’s European business. The deal would seem to strengthen Avery’s core pressure-sensitive materials segment, which accounts for nearly 75 percent of company’s net sales, allowing it to serve more customers in Europe and Asia. “The acquisition of Mactac Europe enhances our competitiveness in high-value graphics,” Dean Scarborough, former chief executive turned executive chairman, said in a statement. (Mitchell Butier, Avery’s former chief operating officer, has served as chief executive since May 1.) “Mactac complements our existing business with a strong brand and loyal customer base, expanding our product offering, capabilities and distributor network,” Scarborough added. Core segment Avery Dennison’s pressure sensitive materials business – or what the industry calls PSM – is the largest in the country, and accounts for $4.4 billion of the company’s 2015 sales, according to analyst Jeffrey Zekauskas with JP Morgan Chase & Co. in New York. In his April 28 report, Zekauskas said Avery projects that the Mactac European business could add $25 million in EBITDA, or earnings before interest, taxes, depreciation and amortization, to its 2017 results. “Avery (reported) better than expected first quarter results stemming from healthy volume growth and margin expansion,” Zekauskas wrote. “Mactac’s 2015 run-rate revenues for its European graphics division would roughly double Avery’s exposure in the graphics end market in Europe.” At present Avery Dennison has 70 distribution centers around the globe in countries including China, India and several in South America. It’s PSM business provides bar code and film labels, in addition to graphics and reflective materials for large screen printing and signage. Mactac’s PSM business also includes graphics, specialty labels and industrial tapes, aligning with Avery’s most profitable segment. The acquisition agreement includes Mactac’s only manufacturing plant in Soignies, Belgium. Assets also include sales offices and warehouses in Europe and Asia, eight coating lines with various capabilities in the primary adhesive categories, and roughly 470 employees. “We plan to continue operating Mactac’s manufacturing facility in Soignies, Belgium,” Chief Executive Butier said in a statement. “The facility and its people (will be) a key driver of Avery Dennison’s future innovation and growth in Europe.” For the most recent quarter, Avery reported a net profit of $89.6 million, up 25 percent from $71.9 million in the year-ago quarter. In his April 28 report, Zekauskas gave Avery an overweight target price of $80 and lifted his earnings per share estimate from $3.75 to $3.85. Shares closed May 11 at $75.80. As for Mactac’s business in the U.S., Mexico and Canada, Platinum will continue to focus on growing it and driving sales, according to Avery’s statement about the acquisition. Avery declined to comment to the Business Journal on the acquisition, and Platinum did not respond to attempts for a comment. Turnaround Contingent upon regulatory approval, Avery Dennison will acquire Mactac’s European business for roughly 35 percent more than Platinum paid for the entire Mactac business in 2014. Platinum acquired Mactac from Neenah, Wis.-based Bemis Company Inc. in November 2014 for $170 million. At the time Bemis, a packaging solutions company currently trading on the New York Stock Exchange, was looking to unload Mactac so it could focus its resources on strengthening its core flexible packaging business. Avery’s Butier said during the conference call that Platinum has invested a great deal in the restructuring and reorganization of Mactac’s European business since it was acquired more than 18 months ago. “They’ve done a phenomenal job, the leadership in Mactac have, particularly in Europe, in really turning that business around and improving the profitability, leaning out the organization. They’ve created a lot of value in the last 18 months,” Butier said. “We see opportunities to leverage it from here and to create even more value going forward.” Avery expects the acquisition to have little impact on earnings this year, though there will likely be a 10 cent gain to earnings per share in 2017. Funding for the acquisition will come from existing cash and credit lines. Avery projects the deal to close within two to three months. Butier said Avery is filing customary paperwork in a handful of jurisdictions, namely Germany, that should go through in a few months. And because PSM is such a competitive sphere, Butier said he is confident regulators will view the deal favorably. “Mactac’s business is primarily a graphics business, by and large, with a little bit of tape. It’s a nice add-on to what we’re doing,” Butier said during the conference call. “These are both categories where we have relatively low market shares respectively. I don’t want to project how regulatory agencies will react, but suffice it to say that we wouldn’t have done the deal unless we had some level of confidence that it would go through.” In a recent report, analyst Christopher Kapsch with BB&T Capital Markets in Richmond, Va. said the Mactac acquisition looks “compelling” so long as there are no regulatory hurdles prolonging the deal from going through. “Avery indicated the deal might close over the next few months, although we suspect there will be antitrust scrutiny, given prior challenges to the Pressure Sensitive industry’s efforts to consolidate in previous mergers and acquisitions,” Kapsch’s April 28 report read.

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