Probiotec (ASX: PBP) has made what it calls a “strategic” bid for contract packing business Multipack-LJM – offering to pay an aggregate enterprise value of $52.5 million for the entity.
According to Probiotec, Multipack-LJM is one of Australia’s leading packing businesses that services major global pharmaceutical, consumer healthcare, cosmetics and food and beverage companies.
Multipack-LJM services these companies from its warehouses in Sydney and Melbourne with about 30,000 square metres in total capacity.
The company provides clean room and cold pack services plus automated and manual solutions for large and small product lines.
During the financial year ending June 2020, Multipack-LJM achieved $70 million in sales revenue, which underpinned normalised earnings before interest tax depreciation and amortisation of $12.6 million.
Rationale behind acquisition
Probiotec chief executive officer Wes Stringer said acquiring Multipack-LJM was the “next step in Probiotec’s evolution”.
“This acquisition will give us significant critical mass and access to an amazing spread of global clients to offer our wide range of manufacturing and packing services,” he added.
Probiotec anticipates combining its existing Sydney packing operations with Multipack-LJM’s capacity will create one of Australia’s “leading packing operations”.
Sales for the merged companies are predicted to be about $100 million.
Additional benefits to the acquisition include the ability to offer an extended and more diversified range of services to a growing and widespread customer base.
The larger scale footprint is also anticipated to increase the combined customer base due to the expanded capabilities.
With the potential for synergies across both businesses, Probiotec plans to drive operational costs down.
Under the deal, Probiotec will make an upfront cash payment of $32.4 million and issue $7 million in shares.
A contingent deferred consideration of $13.1 million will be paid over two years. This will be subject to Multipack-LJM vendors achieving EBITDA performance hurdles.
The Multipack-LJM vendors will join the Probiotec executive team to jointly grow the combined business.
Probiotec expects the acquisition will be about 40% earnings per share accretive based on Multipack’s performance in the last financial year.