Corrugated packaging recycler DS Smith has announced its intentions to acquire rival Duropack from CP Group 2 BV, a One Equity Partners (OEP) subsidiary, for approximately €300 million (£220m).

DS Smith has said it is looking to purchase Duropack, an Austrian-based recycled corrugated board packaging business, as it would complement its geographic footprint across Austria, Hungary, and Slovakia, raise its position in South Eastern European, and strengthen its pan-European capabilities by providing access to new customers.

The company employs around 2,600 people and is also said to be attractive as it is ‘well invested with high-quality assets’ and operates a short paper, long fibre model similar to that of DS Smith.

The business has 14 corrugated packaging sites, two paper mills and 18 recycling sites across nine countries.

This will be the second acquisition DS Smith has made in the past six months, after purchasing the Recycling Division of Middleton Paper for an undisclosed sum in October 2014.

Duropack financial background

DS Smith has highlighted that Duropack delivered €41 million (£29m) in earnings before interest, tax, depreciation and amortization (EBITDA) and EBIT of €22m (£16m) on turnover of €273m (£198m) in 2014.

It added that ‘cost synergies’ of €12 million (£9m) would expected to be realised by DS Smith within three years of ownership.

The additional investment required to integrate the acquisition is around €13 million (£9.5m), incurred over the first two years. This will be funded by cash savings, driven by working capital efficiencies and ‘tight cash management’.

The total consideration, including the assumption of debt, is expected to be circa €300 million, subject to customary post-closing adjustments, representing a post synergy multiple of 5.7 times EBITDA.

The acquisition is being financed from existing debt facilities. It will be immediately accretive to earnings per share and generate a return above cost of capital during the second year of ownership.

The acquisition is subject to competition clearance, which DS Smith expects will come to pass in the second quarter of the calendar year, with completion shortly thereafter.

‘A further important step in leveraging scale and strengthening geographic footprint’

Miles Roberts, Chief Executive of DS Smith said: “Duropack is an excellent business and a highly complementary fit. It is a further important step in our strategy to leverage our scale and strengthen our geographic footprint.

“Duropack has high quality assets with market leading positions. We look forward to it contributing to the overall growth of DS Smith in attractive markets where we were previously under-represented.”

Rob Jan Renders, CEO of Duropack, commented: “Together with OEP, we have taken Duropack forward as a reliable, flexible and creative partner for our customers. This was a successful and constructive time for the company as well as the management team. We now look forward to continuing our positive development with DS Smith to further create value for our customers and business partners.”

Melchior von Peter, Managing Director at OEP, added: “The Duropack Group is well positioned in the growing packaging industry. Rob Jan Renders and the management team, along with all the employees of Duropack, have done an excellent job in advancing Duropack’s customer offering and market position.

“On behalf of OEP, I would like to say thank you for the excellent collaboration.”

Find out more about DS Smith and Duropack.