Friday 17 February 2017 by William Arnold Company updates

ACCC will not oppose PMP-IPMG merger

PMP confirmed its proposed merger with IPMG will proceed as planned, following Australian Competition and Consumer Commission’s (ACCC) final decision that it will not oppose the transaction

If the deal does complete, leverage is expected to increase initially. We view the merger to be long term credit positive, as synergy benefits come through and excess capacity is taken out of the merged entity.

Both companies are now working towards a completion date of 1 March 2017.

Key points:

  • IPMG is a long established print and digital services provider operating in Australia. IPMG operates through various businesses, including Hannanprint, Inprint and Offset Alpine. IPMG generated approximately $362m of revenues and $21m of normalised EBITDA for the 12 months ended 30 June 2016
  • On completion of the transaction, PMP will acquire 100% of IPMG and will issue new PMP shares to the IPMG shareholders. Together they will hold a maximum 37% interest in PMP, equating to a consideration value of approximately $119m – based on a share price of $0.635 at the time of signing the agreement
  • The merger is expected to deliver approximately $40m per annum of cost synergies across the combined group, with one off cash costs totalling approximately $65m. Following completion, it is expected that full run rate synergies will take between 18 to 24 months to achieve
  • Before cost synergies, the transaction multiple is approximately 5.7x FY16 normalised IPMG EBITDA (approximately 2.0x FY16 normalised EBITDA after full synergies, and excluding one off implementation cash costs)
  • The merger is materially cashflow accretive on a pro forma FY16 basis
  • PMP has secured credit approved commitments from ANZ for new debt facilities of up to $60m, to fund working capital requirements and the one off implementation costs of delivering the synergies
  • Gearing is anticipated to increase moderately in 2H17 reflecting upfront implementation cash costs, however is expected to reduce thereafter subject to the timing of synergy benefits. Future capital expenditure commitments are expected to remain low
  • Given the cash demands of delivering synergies, PMP will suspend both dividends and share buybacks during the implementation period. PMP will continue to progressively review capital management policies, but does not expect to recommence dividends or share buybacks before 2018 subject to trading conditions