Greif Inc., a Delaware, Ohio-based leader in industrial packaging products and services, has entered into a definitive agreement to acquire Caraustar Industries Inc., a leading recycled paperboard and packaging solutions company based in Austell, Georgia, from an affiliate of H.I.G. Capital. The cash transaction is valued at $1.8 billion and is expected to close during the first quarter of 2019, subject to customary closing conditions, including regulatory clearances, according to a news release issued by Greif.
Caraustar produces uncoated recycled paperboard (URB) and coated recycled paperboard (CRB), with a variety of applications that include tubes and cores and a diverse mix of specialty products. The company’s footprint includes more than 80 operating facilities throughout the United States. Its business lines include Recycling Services, Mill Group (URB, CRB and specialty paperboard products), Industrial Products Group (tubes and cores, construction products, protective packaging, adhesives) and Consumer Packaging (folding cartons, setup boxes, packaging services).
“Caraustar offers an exceptional strategic and cultural fit for Greif,” says Greif President and Chief Executive Officer Pete Watson. “Its complementary paper packaging and recycled fiber operations will drive significant free cash flow growth, improve balance and profitability within the Greif portfolio and increase Greif's exposure to U.S. industrial and consumer end markets. Most importantly, Greif and Caraustar share the same dedication to providing industry-leading service to all customers. I am excited to welcome our new colleagues to the Greif family and look forward to working closely with them.”
“We are excited about [the Dec. 20] announcement and what it means for Caraustar's customers and employees,” says Caraustar President and Chief Executive Officer Mike Patton. “Greif is a well-known market leader with a strong manufacturing base. Our customers will benefit from Greif's customer service focus and broad product offering and our employees will join a culture with a strong legacy for service and quality.”
For the 12-month period ended Sept. 30, 2018, Caraustar generated $1.4 billion in sales and earnings before interest, taxes, depreciation and amortization (EBITDA) of $174 million. Based on trailing 12-month actual volume, adjusted for current market conditions as of that date, the company’s run-rate EBITDA is $220 million, Greif notes in its news release.
Greif says the transaction significantly enhances its scale and scope in the industrial packaging market, creating significant competitive advantages and long-term operating leverage. The company says the transaction is immediately accretive to earnings and the company’s financial profile. Greif says it also expects strategic flexibility for capital deployment going forward.
The addition of Caraustar is expected to increase Greif's U.S. sales to roughly two-thirds of total consolidated sales from approximately half for fiscal 2018, according to the company. In addition, the percentage of Greif's sales from paper packaging will expand to approximately half of total consolidated revenues compared with 23 percent for fiscal 2018.
Greif says it also expects the transaction to generate annual run-rate cost synergies of at least $45 million within 36 months of closing through an combination of back office savings, transportation optimization, recycled fiber savings, operational improvements and other procurement-related activities.
Greif describes Caraustar as a market leader in URB and CRB with an attractive mix of industrial and consumer customers. Additionally, Caraustar sells a variety of specialty paper products that Greif says will complement its Paper Packaging & Services specialty portfolio.
Caraustar’s business offers close operational adjacency to Greif's current mill operations and its operational philosophy aligns with Greif’s as well, according to the news release.
Wells Fargo Bank, National Association, Goldman Sachs Bank USA and JP Morgan Chase Bank, N.A., have provided financing commitments for the transaction, providing additional term loans and bridge financing to a planned issuance of senior unsecured notes, subject to customary terms and conditions.