WestRock: Consolidator Buys Another Consolidator
WestRock (WRK) is acquiring KapStone Paper (KS) which in itself has been a serial acquirer, thereby combining two very entrepreneurial businesses, at least in the top management team. The deal to acquire KapStone, which adds about a fifth to WestRock’s sales, looks fair as WestRock should be able to reap the benefits of the synergies, equal to a few dollars per share.
While this sounds reasonable, investors react with caution although it is hard to “purify” the market reaction as WestRock reported its first-quarter results along the way as well. I think the deal is fair and that long-term value can be extracted, which makes that the modest disappointment appears to create a buying opportunity, although I am mindful of the momentum run seen in recent months already. This makes that I will wait for a further pullback towards the $60 mark.
WestRock has agreed to acquire KapStone Paper and Packaging company in a deal which values equity of the target at $35 per share. Including a net debt load of $1.36 billion, the deal comes in just shy of the $5 billion mark at $4.9 billion. Investors in KapStone can either look forward to $35 per share in cash or 0.4981 shares of WestRock, with the stock consideration being capped at 25%.
WestRock is quick to point out that the deal values KapStone at a little less than 10 times EBITDA based on the annualised performance in the second half of 2017. KapStone has announced unaudited adjusted EBITDA of $130-135 million for the fourth quarter of 2017. If synergies are included, this multiple drops to 7 times EBITDA as the deal is set to be immediately accretive to earnings.