Greetings cards-to-Christmas crackers maker IG Design (IGR:AIM) will become the biggest consumer gift packaging business in the world and double its US revenues via the £56.5m takeover of Impact Innovations, a strategically transformative deal to be funded by the first tranche of an oversubscribed £50m placing.
Impact Innovations has been on IG Design’s radar for some time and it is estimated the combined business will boast around 22% of the overall consumer gift packaging market in the USA and Canada while also having the ability to build market share in the growing seasonal fabric and decor market.
UPSIDE STATESIDE
Bid up 4% or 21p to 544p on today’s exciting deal news, high-flying IG Design will be making the most of the parties around Super Bowl Sunday, Thanksgiving and the 4th of July following the acquisition of US-based Impact Innovations, a leading gift wrap and seasonal decor supplier in the USA whose key customers include Walmart, Target, Shopko, Meijer and Kroger.
With operations in the US, China and Hong Kong, Minnesota-headquartered Impact made an adjusted EBITDA of $15m on $156m turnover in 2017. The business is more seasonally skewed to Christmas than the increasingly diversified IG Design, seasonal decor being its largest individual product category.
‘We are delighted to be acquiring a business that has a strong track record of consistent robust financial performance and cash generation through providing great product and category management expertise to its customers. As a combined group, we have a significant opportunity to capitalise on our now enlarged scale and breadth of offering to our customer base of many of the world's largest and most successful retailers.’
Fineman believes the acquisition will also deliver annual synergies ‘in excess of $5m’ by year three, enable IG Design’s expansion into the growing seasonal decor category in North America and around the world, while also adding new customers across the pond.
IG Design already works with an array of retail winners including Tesco (TSCO), Walmart, CVS Pharmacy and discounters Dollar Tree, Dollar General, Aldi and Lidl.
In particular, IG Design has been impressed by the strength and depth of the relationship that Impact Innovations has with its largest customer, Walmart, which is expected to account for over 15%of the enlarged entity’s turnover following the acquisition.
‘Together, we will enhance our scope for future development, both organically and through carefully considered acquisitions, building on the strong foundations that have been laid and taking Design Group to its next exciting level of growth,’ continues Fineman, also confirming strong trading for IG Design in the financial year to date.
THE ANALYSTS’ TAKE
Progressive Equity Research views the significant exposure to Walmart as more positive than negative. ‘A combined Impact/Design Group is potentially attractive as a bigger supplier to Walmart, providing a one-stop shop, simplifying the supply chain and making it more cost effective.
Impact’s US manufacturing base is also attractive as it is consistent with Walmart’s commitment to its “Made in America” initiative which supports increased US based manufacturing.’
Meanwhile Cenkos, upgrading its full year 2020 top line and adjusted EBITDA forecasts by roughly a third to £481m and £48.2m respectively, reiterates its ‘buy’ stance on IG Design. The brokerage views the acquisition as ‘immediately enhancing to profits and accretive to shareholders.
IG Design has a proven track record of delivering double-digit growth, improving returns on capital, with a focus on cash profits and increasing dividend distributions.'
