Tuesday 08 November 2016 by FIIG Research Company updates

PMP to acquire print and digital services provider IPMG Group

PMP has entered into an agreement to merge with IPMG Group (IPMG), a privately owned print and digital services provider


PMP Limited (PMP), the largest commercial printer in Australia and New Zealand, has entered into an agreement with privately owned print and digital services provider IPMG Group (IPMG). PMP will issue approximately 188m new shares for the acquisition. $40m of annualised savings come with a one off cash integration cost of about $65m funded by a new $60m ANZ debt facility.

Leverage is likely to increase initially but will be long term credit positive as synergy benefits come through and excess capacity taken out of the merged entity.

Further details are as follows:

  • On completion of the transaction, PMP will acquire 100% of IPMG and will issue new PMP shares to the IPMG shareholders who together 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 transaction is subject to closing conditions, including approval at a meeting of PMP shareholders scheduled for 16 December 2016
  • The transaction will also be reviewed by the ACCC who declined a similar proposed merger 15 years ago, as between them the two businesses have a major share of the country's best selling magazines and long run catalogues. However the landscape is dramatically different today with consolidation needed to support an overall declining industry
    With that said however the consolidation would create an entity with a circa 64% market share in Australia. The Hannan Group is the key competitor for major national contracts like Coles and Woolworths. Hannan has a presence in all east coast capitals. PMP is the only major printer with a west coast operation. The other three major players, Franklin, AIW and Webstar are based in Melbourne, Melbourne and Melbourne and Sydney only, respectively
  • IPMG is a long established print and digital services provider operating in Australia. IPMG operates through various businesses, including Hannanprint, Inprint and Offset Alpine. On a PF basis, IPMG generated approximately $362m of revenues and $21m of normalised EBITDA for the 12 months ended 30 June 2016
  • PMP will issue up to a maximum of 187,970,295 PMP shares to the IPMG shareholders (being equal to 37% of PMP on a diluted basis, including vested performance rights).  The implied value of shares issued to IPMG is $119,361,137 assuming a PMP share price of $0.635 as at 27 October 2016
  • The merger is expected to deliver approximately $40m per annum of PF cost synergies across the combined group, with one off cash costs totalling approximately $65m. It is expected that full run rate synergies will take up between 18 to 24 months to achieve following completion
  • Before PF cost synergies, the transaction multiple is approximately 5.7x FY16 normalised IPMG EBITDA (approximately 2.0x FY16 normalised EBITDA after full PF synergies, and excluding one off implementation cash costs)
  • The merger is materially cash flow 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 buy backs during the implementation period. PMP will continue to progressively review capital management policies but does not expect to recommence dividends or share buy backs before 2018 subject to trading conditions

The fixed rate PMP 2019 bonds are available to wholesale and retail investors, indicatively offered at a yield to worst* of 5.77% as at 8 November 2016. Minimum parcel size is $10,000.

*Note: Yield to worst is the lowest yield an investor can expect when investing in a callable bond.