With the takeover of Scholle IPN, the Schaffhausen-based beverage bottler SIG Combibloc is expanding both its product range and geographical coverage. Thanks to its resilient business model, temporarily higher levels of debt can be accepted.
SIG Combibloc is expanding into the USA: employees at the Neuhausen plant.
SIG Combibloc, the Schaffhausen-based manufacturer of beverage cartons and the associated filling systems, is taking a significant step closer to the dominant market leader Tetrapack, which covers around two-thirds of the market. SIG Combibloc takes over the American company Scholle IPN for 1.36 billion euros. That’s 14.5 times adjusted earnings at Ebitda level, or 12.2 times if targeted cost savings are realized. The seller is Laurens Last, the company’s president and sole proprietor. Because around half of the purchase price will be paid with SIG shares, Last will become the largest shareholder in SIG Combibloc with a stake of 9.1 percent. He is to be elected to the board of directors, and CEO Ross Bushnell is to take a seat on the executive board of SIG Combibloc.
“Strategic Acquisition”
According to SIG CEO Samuel Sigrist, the transaction is of “strategic” importance because this step brings the company into new product categories and attaches more importance to the Americas region. In the future, SIG Combibloc will generate almost a quarter of its revenue in North and South America. Founded in 1945, Scholle IPN achieved sales of the equivalent of EUR 474 million last year and an adjusted EBITDA margin of around 19 percent. A good half of sales are made in the USA. Overall, SIG Combibloc will have a good 10,000 employees in the future and generate sales of around 2.7 billion euros. Tetrapack, also domiciled in Switzerland, has a turnover of around 11 billion euros and employs over 25,000 people.
Scholle IPN is regarded as the inventor and world market leader in so-called bag-in-box packaging. These are flexible plastic containers in cardboard boxes with a capacity of 2 to 1500 liters. The smaller ones are used in retail (e.g. for wine), the larger ones for industrial applications (e.g. bottling stations for soft drinks). Because the packaging (as with SIG Combibloc) does not contain aluminum, it has a lower environmental impact and is easier to recycle.
Broadening of the range
In the second product category, the flexible stand-up pouches, Scholle IPN is number two worldwide. Stand-up pouches are becoming increasingly popular for smaller formats (50 to 500 milliliters) for packaging liquid and pureed foods. This is particularly the case in the emerging countries, because consumers there can often only afford small quantities. SIG Combibloc is well represented in these regions. Two months ago, the Saudi Arabian joint venture partner was paid out.
So far, however, SIG Combibloc has concentrated on its traditional business of aseptic packaging of beverages and dairy products. “The acquisition of Scholle IPN makes our business stronger and more resilient,” Sigrist told the media. In the next few years, organic growth would now be the focus.
debt is rising again
However, the strategically sensible takeover will bring SIG Combibloc’s debt back to the level at which it was at the time of the IPO in autumn 2018. Together with the listing, the company raised around CHF 1 billion in equity to reduce its debt. Thanks to the good cash flow that the business model allows, the company managed to reduce the debt ratio (net debt in relation to Ebitda) to around 2.5 times. Now the debt is skyrocketing again to around 2.2 billion euros or about 3.25 times, although half of the purchase price is paid with treasury shares and a small capital increase. Up to 89 million euros a year await the previous owner Last if Scholle IPN succeeds in increasing sales by more than 6 percent over the next three years.
The SIG management can only take this risk because it is pursuing a business model that is not only not very dependent on the economy, but is also based on long-term customer relationships and high margins. On average, SIG Combibloc has been working with its ten largest customers for more than 30 years. The situation is identical for plaice IPN. The bottling plants are given to the customers cheaply. The companies earn money with the packaging and closures that they supply to the food producers. The higher the quantities, the greater the profit for SIG Combibloc and Scholle IPN.
Lower profitability
With an adjusted Ebitda margin of 19 percent, however, the Americans have not yet come close to the margin level of SIG Combibloc, which is the leader in the industry. In 2021, the Schaffhausen-based company improved the margin from 27.4 to 27.7 percent. This allows the dividend to be increased to 45 centimes (previous year 42 centimes) per share. Sales reached EUR 2.047 billion and, with an increase of 6.6 percent, exceeded the targeted annual volume increase of 4 to 6 percent.
The SIG Combibloc management is convinced that Scholle IPN’s margins can be increased. Savings in procurement and efficiency gains in production should result in annual savings of 17 million euros. In the medium term, i.e. in a few years, combined margins of over 27 percent will be possible again, they promise. SIG Combibloc also intends to stick to its progressive dividend policy. As before, 50 to 60 percent of the net profit is to be paid out to the shareholders as a dividend.
Caution prevails
The investors did not allow themselves to be infected by the optimism of the SIG management. the Price of the SIG securities continued to lose ground on Tuesday in a generally firmer market environment. Since the high last autumn, SIG Combibloc has now lost around a quarter of its market capitalization. Compared to the level at the time of the IPO in autumn 2018, however, this still means that the company value has doubled or roughly the price increase of the Swiss Performance Index in this period.