Proposed Sale of Laminates, Films & Coated Fabrics

RNS Number : 5084J

Synthomer PLC

13 December 2022

 

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN OR INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF SUCH JURISDICTION

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

For immediate release

13 December 2022

SYNTHOMER PLC

Proposed sale of the Laminates, Films and Coated Fabrics Businesses

Synthomer plc ("Synthomer" or the "Company" and, together with its subsidiaries, the "Group"), today announces it has agreed to the sale of its laminates, films and coated fabrics businesses (the "Laminates, Films and Coated Fabrics Businesses") to Surteco North America, Inc. (the "Purchaser") (the "Proposed Transaction") for a total enterprise value of approximately US$255 million (£208 million).

Transaction highlights

•	Agreement to sell the Laminates, Films and Coated Fabrics Businesses to the Purchaser for a total enterprise value of US$255 million (£208 million). The net proceeds arising from the Proposed Transaction are expected to be approximately US$245 million (£199 million) (the "Net Proceeds")
•	The consideration implies an EV/EBITDA multiple of approximately 8 times based on the EBITDA for the 12-month period ended 31 December 2021, which compares favourably with the post-synergy acquisition multiple of approximately 7 times achieved in connection with the OMNOVA acquisition in April 2020
•	The Net Proceeds will be used to repay certain indebtedness in order to strengthen the Group's balance sheet and support a reduction in leverage towards the Company's target range of 1 to 2 times Net Debt to EBITDA over the medium term
•	The Proposed Transaction is in line with Synthomer's strategy as set out at the Capital Markets Day in October to increase the specialty weighting of its portfolio through the sale of identified non-core assets

Expected timetable

•	The Proposed Transaction constitutes a Class 1 transaction for the purposes of the Listing Rules, and therefore requires the approval of Synthomer's shareholders. A circular containing further details of the Proposed Transaction and a notice convening a general meeting of Synthomer will be sent to Synthomer's shareholders in due course
•	The Proposed Transaction will also be conditional on certain regulatory approvals, customary closing conditions and certain other conditions
•	Assuming satisfaction or waiver of all conditions to the Proposed Transaction, Completion is expected to occur in Q1 2023

Michael Willome, CEO, Synthomer plc, said:

"This divestment is consistent with our recently announced strategy to increase the specialty weighting of our portfolio and focus on higher value, higher growth markets where we have strong and sustainable leadership positions. The proceeds represent excellent value for our shareholders and the transaction is a significant step in the deleveraging of the Group. I would like to thank those colleagues leaving Synthomer and wish them well for the future."

Enquiries:

Synthomer plc

Tim Hughes

[phone]

J.P. Morgan Cazenove (Sole Sponsor and Corporate Broker)

Richard Perelman, Charles Oakes

[phone]

Piper Sandler (Financial Adviser)

Ian George, Michael Tsangarides

[phone]

Teneo (Financial Public Relations Adviser)

Charlie Armitstead

[phone]

SYNTHOMER PLC

Proposed sale of the Laminates, Films and Coated Fabrics Businesses

1.  Introduction

The Company today announces it has agreed to sell its Laminates, Films and Coated Fabrics Businesses to Surteco North America, Inc. for a total enterprise value of approximately US$255 million (£208 million), representing a multiple of approximately 8 times EBITDA for the 12-month period ended 31 December 2021. The net proceeds arising from the Proposed Transaction are expected to be approximately US$245 million (£199 million) consisting of: US$250 million (£204 million) payable in cash on the Completion Date, subject to customary adjustments and net of estimated transaction costs of US$10 million (£8 million) and, US$5 million (£4 million) payable in cash on the thirteen (13) month anniversary of the Completion Date.

On 12 October 2022, Synthomer announced an update to its strategy, setting out its plans to 'Focus, Strengthen and Grow' the business. As part of focusing the business, the Company intends to increase the weighting of specialty chemicals versus base chemicals in its portfolio, create a more balanced geographic exposure, streamline its operational footprint and apply more rigorous capital allocation across its business. During its strategic review, Synthomer identified a number of non-core businesses which have limited synergies with the rest of the Company's identified growth platforms and which are less attractive areas for the Company to deploy its capital. The Laminates, Films and Coated Fabrics Businesses were identified as a non-core business as part of this strategic review.

The board of Directors of Synthomer (the "Board") believes the value to be achieved by the Proposed Transaction represents an attractive outcome for Synthomer shareholders. The Net Proceeds will be used to repay certain indebtedness in order to strengthen Synthomer's balance sheet and support a reduction in leverage towards the Company's target range of 1 to 2 times net debt to EBITDA over the medium term.

Owing to its size, the Proposed Transaction constitutes a Class 1 transaction for the purposes of the Listing Rules, and therefore requires the approval of Synthomer's shareholders. A circular containing further details of the Proposed Transaction and a notice convening a general meeting of Synthomer will be sent to Synthomer's shareholders in due course.

2.  Background to and reasons for the Proposed Transaction

On 12 October 2022, Synthomer outlined its strategy to reposition its business towards specialty chemicals. As outlined in that strategy, Synthomer plans to:

(A)	focus through portfolio rationalisation to reduce complexity, increase end-market orientation, expand its specialty solutions portfolio and maintain disciplined capital allocation;
(B)	strengthen with investment in innovation leveraging sustainability, business excellence and returning leverage to target levels; and
(C)	grow from being a larger-scale to a more focused and stronger business in attractive end-markets.

As part of the new strategy, the Board outlined a new divisional structure aligned to attractive end-markets. This reorganisation will lead to the creation of three new divisions: (i) Coatings and Construction Solutions; (ii) Adhesive Solutions; and (iii) Health, Protection and Performance Materials.

The specialty growth platforms (the Coating and Construction Solutions and Adhesive Solutions segments) benefit from robust growth dynamics, have strong and sustainable leadership positions and are significantly differentiated from their competitors. The Health and Protection platform benefits from the attractive growth dynamics of the underlying medical glove market but is inherently more cyclical.

Performance Materials are the non-core elements of Synthomer's portfolio and include legacy non-core businesses from the Performance Elastomer and Industrial Specialty divisions, including the Laminates, Films and Coated Fabrics Businesses.

The Laminates, Films and Coated Fabrics Businesses were acquired as part of the acquisition of OMNOVA Solutions Inc. ("OMNOVA") in 2020.

The Board unanimously believes that the Proposed Transaction is in the best interests of the Company, its Shareholders and its other stakeholders as a whole, for the following reasons:

(A)	the Proposed Transaction implies an EV/EBITDA multiple of approximately 8 times based on the EBITDA for the 12-month period ended 31 December 2021 for the Laminates, Films and Coated Fabrics Businesses , which compares favourably with the post-synergy acquisition multiple for OMNOVA of approximately 7 times ;
(B)	the Proposed Transaction is in line with the Company's strategy to increase the specialty weighting of its portfolio through the sale of identified non-core assets; and
(C)	the Net Proceeds will be used to repay certain indebtedness in order to strengthen the Group's balance sheet and support a reduction in leverage towards the Company's target range of 1 to 2 times Net Debt to EBITDA.

3.  Information on the Laminates, Films and Coated Fabrics Businesses

Synthomer's laminates business is a provider of functional and decorative surfaces in North America for residential, commercial and transportation end-markets. Products are used in kitchens and bathrooms, recreational vehicles, store fixtures and luxury vinyl tiles.

Synthomer's laminates business is one of the leading producers offering both polyvinyl chloride ("PVC") and paper laminates. The business has a large selection of customisable designs, deeply entrenched customer relationships and proprietary product technologies. The business has three manufacturing facilities in North America, with additional production capabilities in Thailand.

Synthomer's coated fabrics business is a provider of coated fabrics for premium applications across South-East Asian OEM automotive and motorcycle and North American commercial, marine and transport seating end-markets. The business has a modern manufacturing facility in Thailand and distribution centre in North America.

In total, both businesses employ around 800 employees.

4.  Use of Proceeds and Financial Effects of the Proposed Transaction

The Net Proceeds arising from the Proposed Transaction are expected to be approximately US$245 million (£199 million).

The Net Proceeds will be used to repay certain indebtedness in order to strengthen Synthomer's balance sheet and support a reduction in leverage towards the Company's target range of 1 to 2 times Net Debt to EBITDA over the medium term.

In FY21, the Laminates, Films and Coated Fabrics Businesses contributed EBITDA of US$33 million and underlying operating profit of US$25 million to Synthomer. Following completion of the Proposed Transaction, Synthomer will no longer receive the contribution that the Laminates, Films and Coated Fabrics makes to the consolidated operating profit of the Synthomer Group.

The Laminates, Films and Coated Fabrics Businesses' total assets as at 31 December 2021 were US$124 million. Further information on the financial effects of the Proposed Transaction will be set out in the circular to shareholders.

5.  Information on the Purchaser

The Purchaser is a subsidiary of Surteco Group SE, a Germany-based developer, designer, producer and marketer of surface materials based on paper and plastics. The shares of Surteco Group SE are listed on the Prime Standard of the Frankfurt Stock Exchange and are traded on the stock markets in Frankfurt, Stuttgart, Munich, Berlin, Düsseldorf, Hamburg and Hannover.

Surteco Group SE operates through three segments: Decoratives, Profiles and Technicals. Decoratives produce decor papers, finish foils and edgebandings. Profiles manufactures floor strips and skirtings, wall edging systems and technical extrusion (profiles). Technicals manufacture impregnated products, plastic based finish foils as well as edgebandings and finish foils with specific requirements.

Surteco Group SE markets products under the Surteco, Döllken, Dakor and Kröning brands, among others.

6.  Group Trading Update

At the end of September, the Group reported that high inventory levels of medical gloves and reduced demand had created a prolonged period of destocking. This has continued to impact nitrile butadiene rubber (NBR) production volumes, delaying a return to pre-pandemic NBR growth. The Board's outlook for Performance Elastomers is unchanged. It still expects this division to achieve modest profitability for the second half of the year and that the destocking impact is unlikely to abate before the end of 2023.

Synthomer also highlighted deteriorating macroeconomic conditions, leading to reduced demand in construction and coatings end markets. Whilst this has impacted trading in Synthomer's European business through the second half of 2022 as anticipated, this has also now extended to the Group's operations outside Europe.

7.  Laminates, Films and Coated Fabrics Trading Update

In line with the Synthomer Group, the Laminates, Films and Coated Fabrics Businesses have seen deteriorating macroeconomic conditions which have led to reduced demand during the second half of 2022. The Laminates, Films and Coated Fabrics Businesses have performed in line with these macroeconomic conditions and have not seen any significant change relating to their market position, site operations or regulatory position. In the individual segments of the Laminates and Films business, we have seen destocking in the Kitchen and Bath end market and some softer volumes in the Recreational Vehicles end market which has impacted the trading results.  The Coated Fabrics business, however, has performed robustly as the Thailand economy recovers from the impact of Covid and margins benefit from falling resin prices and normalising freight costs.

8.  Principal Terms of the Proposed Transaction

On 13 December 2022, the Seller, the Company, the Purchaser and the Purchaser Guarantor entered into the Sale and Purchase Agreement, pursuant to which the Seller has agreed, on the terms and subject to the conditions of the Sale and Purchase Agreement, to sell the Laminates, Films and Coated Fabrics Businesses to the Purchaser. The consideration payable by the Purchaser for the Laminates, Films and Coated Fabrics Businesses is approximately US$255 million (£208 million), with US$250 million (£204 million) payable in cash on the Completion Date, subject to customary adjustments and, US$5 million (£4 million) payable in cash on the thirteen (13) month anniversary of the Completion Date .

As part of the Proposed Transaction, the Seller has given certain warranties, indemnities and covenants to the Purchaser and the Company has given certain covenants and undertakings to the Purchaser in relation to the Resolution and the General Meeting.

The Proposed Transaction is conditional upon the satisfaction (or waiver, where applicable) of certain conditions prior to 13 December 2023, including:

(i)  the receipt of any required consents or antitrust approvals and the expiration or termination of any applicable waiting periods (or extensions thereof) thereto;

(ii)  the affirmative vote in favour of the resolution to approve the Proposed Transaction by Synthomer shareholders representing a simple majority of the votes represented in person or by proxy at the general meeting;

(iii)  consent to the Proposed Transaction of certain of the Company's lenders pursuant to various financing agreements having been obtained; and

(iv)  registration of certain amendments to be made to a lease which forms part of the Proposed Transaction.

Assuming satisfaction or waiver of all Conditions, Completion is expected to occur during Q1 2023.

9.  Irrevocable Undertaking

KLK, which holds 125,589,510 ordinary shares with a nominal value of 10p each in the share capital of the Company (the "Shares"), representing approximately 26.9% of the existing ordinary share capital of Synthomer as at the Latest Practicable Date, has irrevocably undertaken to vote in favour of the resolution approving the Proposed Transaction at the general meeting.

Appendix

Bases and Sources

1.  The Proposed Transaction implies an EV/EBITDA multiple of approximately 8 times based on the EBITDA for the 12-month period ended 31 December 2022 for the Laminates, Films and Coated Fabrics Businesses : Based on the Laminates, Films and Coated Fabrics Businesses' EBITDA for the 12-month period ended 31 December 2021 of US$33 million with reference to the unaudited historical financial information relating to the Laminates, Films and Coated Fabrics Businesses for the 12 months ended 31 December 2021. EBITDA for the Laminates, Films and Coated Fabrics Businesses and the Synthomer Group is defined as operating profit before depreciation, amortisation and Special Items (Special Items as set out in the Synthomer Group's annual report for the year ended 31 December 2021).

2.  The post-synergy acquisition multiple for OMNOVA of approximately 7 times: Based on an announced Enterprise Value of $824 million and OMNOVA's announced May 2019 LTM Adjusted EBITDA of US$73.5m (OMNOVA Q4 press release) plus: (i) pre acquisition results of Resiquimica relating to the period from 1 June 2018 to 25 September 2018, when Resiquimica was acquired by OMNOVA, of US$0.9m; (ii) pre-tax cost savings of the Resiquimica acquisition (as previously announced by OMNOVA) of US$1.1m (with US$0.9m expected to be realised during OMNOVA's H2 2019 and an additional pre-tax cost savings of US$0.2m expected to be realised during the year ending 30 November 2020); (iii) pre-tax cost savings relating to the Green Bay disposal (as previously announced by OMNOVA) of US$7.7m (with US$3.85m expected to be realised during OMNOVA's H2 2019 and total pre-tax cost savings of US$7.7m expected to be realised during the year ending 30 November 2020); and (iv) target run-rate pre-tax cost synergies of US$29.6 million per annum.

3.  Historical financial information relating to the Synthomer Group: Unless otherwise indicated, the historical financial information relating to the Synthomer Group included in this announcement has been extracted without material adjustment from the audited consolidated financial statements of the Synthomer Group for the year ended 31 December 2021.

4.  Historical financial information relating to the Laminates, Films and Coated Fabrics Businesses: Unless otherwise indicated, the historical financial information relating to the Laminates, Films and Coated Fabrics Businesses for the year ended 31 December 2021 included in this document is unaudited and has been extracted without material adjustment from the underlying consolidation schedules and accounting records that underlie the Synthomer Group's audited consolidated financial statements for the financial year ended 31 December 2021.

5.  Latest Practicable Date: 12 December 2022.

6.  Exchange rate: unless otherwise stated, US$ / £ exchange rate of 0.8144 as at 5pm on the Latest Practicable Date as derived from the data provided by Bloomberg.

IMPORTANT NOTICE

This announcement contains inside information and is issued on behalf of the Group by Anant Prakash, Company Secretary.

This announcement is not intended to, and does not constitute, or form part of, any offer to sell or issue or any solicitation of an offer to purchase, subscribe for, or otherwise acquire, any securities or a solicitation of any vote or approval in any jurisdiction. Synthomer shareholders are advised to read carefully the Circular once it has been published. Any response to the Proposed Transaction should be made only on the basis of the information in the Circular to follow.

Piper Sandler Ltd. ("Piper Sandler") is authorized and regulated in the United Kingdom by the FCA. Piper Sandler is acting as financial adviser exclusively for the Company and no one else in connection with the Proposed Transaction and the matters set out in this announcement and will not regard any other person (whether or not a recipient of this announcement) as its client in relation to the Proposed Transaction and will not be responsible to anyone other than the Company for providing the protections afforded to clients of Piper Sandler or its affiliates, or for providing advice in relation to the Proposed Transaction or any other matters referred to in this announcement.

J.P. Morgan Securities PLC, which conducts its UK investment banking business as J.P. Morgan Cazenove ("J.P. Morgan"), is authorized in the United Kingdom by the Prudential Regulation Authority (the "PRA") and regulated in the United Kingdom by the FCA and PRA. J.P. Morgan is acting as sponsor and financial adviser exclusively for the Company and no one else in connection with the Proposed Transaction and the matters set out in this announcement and will not regard any other person (whether or not a recipient of this announcement) as its client in relation to the Proposed Transaction and will not be responsible to anyone other than the Company for providing the protections afforded to clients of J.P. Morgan or its affiliates, or for providing advice in relation to the Proposed Transaction or any other matters referred to in this announcement.

Apart from the responsibilities and liabilities, if any, which may be imposed on Piper Sandler or J.P. Morgan by FSMA or the regulatory regime established thereunder or under the regulatory regime of any jurisdiction where the exclusion of liability under the relevant regulatory regime would be illegal, void or unenforceable, Piper Sandler, J.P. Morgan and any person affiliated with them assumes no responsibility whatsoever for and makes no representation or warranty express or implied, in relation to the contents of this announcement, including its accuracy, completeness or verification or for any other statement made or purported to be made by it, or on its behalf and nothing contained in this announcement is, or shall be, relied upon as a promise or representation in this respect whether as to the past, present or future, in connection with the Company, or the Proposed Transaction. Piper Sandler, J.P. Morgan and their respective subsidiaries, branches and affiliates accordingly disclaims to the fullest extent permitted by law all and any duty, responsibility and liability whether arising in tort, contract or otherwise (save as referred to above) which it might otherwise be found to have in respect of this announcement or any such statement or otherwise.

Neither the contents of the Company's website nor any website accessible by hyperlinks on the Company's website is incorporated in, or forms part of, this announcement.

This announcement contains "forward-looking statements" which includes all statements other than statements of historical fact, including, without limitation, those regarding the Company's financial position, business strategy, plans and objectives of management for future operations, or any statements preceded by, followed by or that include the words "targets", "believes", "expects", "aims", "intends", "will", "may", "anticipates", "would, "could" or similar expressions or negatives thereof. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond the Company's control that could cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Company's present and future business strategies and the environment in which the Company will operate in the future. These forward-looking statements speak only as at the date of this announcement. None of the Company, Piper Sandler, J.P. Morgan or their respective Affiliates undertakes or is under any duty to update this announcement or to correct any inaccuracies in any such information which may become apparent or to provide you with any additional information, other than any requirements that the Company may have under applicable law or the Listing Rules, the Prospectus Rules, the Disclosure Guidance and Transparency Rules or MAR. To the fullest extent permissible by law, such persons disclaim all and any responsibility or liability, whether arising in tort, contract or otherwise, which they might otherwise have in respect of this announcement. The information in this announcement is subject to change without notice.

 

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