Amcor announces acquisition as Pact Group gets set to list

Global packaging giant Amcor (ASX: AMC) has announced the bolt-on acquisition of flexibles packaging business Detmold Flexibles for $50 million. The privately owned Detmold’s operates two plants in Melbourne, Victoria, and has sales of $55 million.

According to Amcor the purchase price represents an earnings before interest, tax, depreciation and amortisation (EBITDA) multiple of 6.6 times and “after the realisation of synergy benefits return on funds employed are expected to be more that 20%.” Those metrics certainly look appealing for shareholders.

The acquisition of Detmold, which will be incorporated into the Amcor Flexibles Asia Pacific business, comes just days after demerger documents landed in the hands of shareholders in preparation of a general meeting scheduled for 9 December to vote on the demerger of Amcor from the newly named Orora Limited.

With the Orora business having undergone significant restructuring over the past few years due to the divestment of a number of non-core segments and the closure of eight plants, the company is now focussed on four segments: integrated fibre packaging, beverage cans, glass bottles and packaging distribution.

Importantly, over the past four years more than $1 billion has been invested in the business which, when combined with the divestment and efficiency program, is expected to lead to $81 million in costs that can be taken out of the business in the next few years.

The packaging sector will certainly be in the spotlight over the coming weeks. Not only will the Amcor-Orora demerger occur resulting in the appealing Orora being separately listed, but Pact Group is also expected to conduct an initial public offering and list on the ASX with a market capitalisation of around $1.1 billion.

Foolish takeaway

The IPO market is getting into full swing and amongst the many over-priced offers will be some gems. According to Macquarie Bank (ASX: MQG), Pact’s sales have risen from $223 million in 2003 to a forecast $1.2 billion in 2014, which equates to a compound average growth rate of 16.5%. With the offer expected to be priced on a price-to-earnings ratio of 13.4, Pact could be an IPO worth investigating.

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Motley Fool contributor Tim McArthur owns shares in Macquarie Group.

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