KALAMAZOO — Foodservice and consumer brand packaging manufacturer Fabri-Kal Corp. has reached a definitive agreement to sell to Pactiv Evergreen Inc. in a deal valued at approximately $380 million.
The family-owned, Kalamazoo-based Fabri-Kal has been in operation since 1950 and employs approximately 1,000 people at four manufacturing plant locations in the U.S. The company makes foodservice and custom thermoformed plastic packaging solutions, including portion cups, lids, clamshells, drink cups and yogurt containers for consumer packaged goods and industrial food markets in North America. About 72 percent of sales for Fabri-Kal are related to foodservice products.
In the 12-month period that ended June 30, Fabri-Kal generated $334 million in sales, with adjusted earnings before interest, taxes, depreciation, and amortization of $54 million, according to an investor presentation on the deal from Lake Forest, Ill.-based Pactiv Evergreen (Nasdaq: PTVE).
For Pactiv Evergreen, the deal helps the company boost its position in the foodservice sector, “a recession-resilient, growing customer end market,” as well as expand its capabilities with “sustainable packaging product offerings,” according to the investor presentation. To that end, about 49 percent of Fabri-Kal’s sales are of its Recycleware and Greenware products.
Pactiv Evergreen said the all-cash deal, including cash on hand and debt, will be immediately accretive on a free cash flow basis.
“Combining these two complementary companies will further expand Pactiv Evergreen’s position in the Foodservice segment, broaden our sustainable packaging product offerings and customer base, and increase our manufacturing capacity and distribution capabilities,” Pactiv Evergreen CEO Mike King said in a statement. “Fabri-Kal is well known for its high-quality products, long standing customer relationships and sustainable packaging solutions.”
The $380 million purchase price is subject to adjustments for cash, working capital and debt, according to a statement.
The companies expect the deal to close late in the third quarter or early fourth quarter of this year, pending regulatory approvals.
Pactiv Evergreen employs nearly 15,000 people and manufactures fresh food and beverage packaging products that are sold to a range of customers, including restaurants, foodservice distributors, retailers, food and beverage producers, packers and processors.
The company generated nearly $4.7 billion in net revenue for 2020 and reported a net loss of $10 million as the ongoing COVID-19 pandemic affected operations, particularly in the foodservice and beverage merchandising markets. The company, previously known as Reynolds Group Holdings Limited and owned by New Zealand billionaire Graeme Hart, went public on Sept. 17, 2020.
In addition to announcing the Fabri-Kal deal, Pactiv Evergreen also lowered its guidance for 2021, citing increasing raw materials costs, the effects of recent weather events including Tropical Storm Fred on its mill in Canton, N.C., and the ongoing labor shortage as adversely affecting its financial performance.
In a call with investors, executives said the Fabri-Kal deal “made a lot of sense” because it was a “net deleveraging transaction including synergies.”
J.P. Morgan Securities LLC served as financial adviser for Fabri-Kal, with Grand Rapids-based Clark Hill PLC serving as legal adviser. New York-based law firm Debevoise & Plimpton LLP advised Pactiv Evergreen in the deal.