American Capital exits DelStar

American Capital has agreed to sell DelStar to SWM for $231.5 million in cash. Headquartered in Middletown, Delaware, DelStar is a maker of thermoplastic nets, nonwovens, laminates, and extruded components.

PRESS RELEASE

ALPHARETTA, GA, November 18, 2013 — SWM (NYSE: SWM) today announced the signing of a definitive agreement to acquire DelStar, Inc. DelStar is a producer of specialty materials largely serving filtration industries, with a focus on water filtration. The purchase price is $231.5 million in cash (subject to certain customary post-closing adjustments) and the transaction is expected to close once customary closing conditions are met, which is anticipated in advance of year-end. DelStar, headquartered in Middletown, Delaware, is currently a portfolio company of American Capital, Ltd. (Nasdaq: ACAS), a publicly traded private equity firm and global asset manager.
DelStar Key Highlights
Suite of highly engineered materials with 70% of revenue from filtration products, with the majority from reverse osmosis and other water filtration applications, and the remainder in other specialty industrial filtration applications
Broad customer base in fast-growing water and industrial filtration segments, as well as healthcare, with deep, long-term relationships
Globally scaled business with annual revenue of $110 million
U.S. centric operations; growing presence in Asia from China base
Strategic Commentary
Frederic Villoutreix, Chairman of the Board and Chief Executive Officer of SWM, commented “We are pleased to announce this transaction. The acquisition of DelStar creates an attractive growth platform in an adjacent business area for SWM as we greatly expand our presence in advanced materials, focused in large part on filtration. In line with the Capital Allocation Strategy we announced earlier this year, DelStar offers significant strategic value to SWM, launching us into an attractive and growing industry that we expect to provide SWM with continued strong financial results. In the last year, DelStar generated approximately $110 million in revenue with a high-teen EBITDA margin, and has delivered consistent long-term results with multi-year revenue and EBITDA growth rates in the 10% range. Underscoring this performance are DelStar’s commitments to product engineering and customer intimacy, two principles shared deeply by both of our organizations. The outlook for DelStar remains robust, with global demand for drinking water infrastructure expected to remain high for the foreseeable future. Further, the company has forged multiple relationships with other industrial and healthcare customers that bolster the growth outlook in these market segments. The strengths of DelStar and SWM are very complementary and we look forward to supporting DelStar’s existing growth plan and exploring commercial synergies in selected product areas.”
“This combination offers substantial opportunities to co-develop composite materials, bring paper-based filtration products to DelStar’s broad customer base, and leverage SWM’s global infrastructure and capital to support accelerated growth efforts for the DelStar franchise. Although attractive purely on a standalone basis, DelStar is an ideal cornerstone acquisition on which we can build a meaningful critical components platform with a focus on filtration. We also expect this combination to accelerate SWM’s existing internal diversification efforts. DelStar’s long-standing relationships in the water filtration, industrial filtration, and healthcare industries should provide SWM new access to a large customer base in these fast-growing segments. In addition, we believe the opportunity to bring SWM’s Operational Excellence program and structure to DelStar’s manufacturing assets could drive margin enhancements over time as we have numerous operating parallels. Lastly, we have worked closely with DelStar management through this process to assess an acquisition strategy for complementary bolt-on transactions and are excited about the potential for attractive and actionable targets for us to pursue in the next few years.”
“We are eager to join with such an innovative and accomplished enterprise and look forward to providing strategic support, access to capital, and shared best practices to help drive DelStar’s success within our organization. Given DelStar management’s track record for steadily improved financial results and extensive industry expertise, they will form the nucleus of SWM’s diversification initiatives in this arena. We also want to underscore that despite this new and exciting diversification effort, SWM remains highly committed to our core tobacco operations and customers, as tobacco will continue to represent the majority of our assets, revenue, and cash flow.”
Mark Abrahams, President and Chief Executive Officer of DelStar, commented “We could not be more pleased with SWM’s choice to bring DelStar Technologies into their family. The combined resources of both enterprises will strengthen our ability to pursue promising opportunities in our base business as well as potential acquisitions. Together, I know we can deliver innovative advanced solutions to our diverse customer base.”
Transaction Highlights
Jeff Cook, Chief Financial Officer of SWM, commented “This transaction is expected to be accretive to earnings in the first year, although final accretion estimates will be driven by purchase accounting and the valuation of intangible assets, specifically customer relationships. We will provide more information about near-term earnings expectations in connection with our fourth quarter earnings release early next year. We feel the financial returns provided by this transaction will be highly accretive to our stockholders, especially as we are using a combination of cash and low-cost debt. In that regard, we do expect to amend and expand our existing credit facility to provide us with continued capital flexibility. However, SWM will still remain a high-quality credit post-close as we finished the third quarter of 2013 with net cash of $71 million on our balance sheet. Post-close leverage will remain conservative. Please note that this acquisition and transaction-related expenses were not contemplated in our 2013 guidance for Fully Diluted Adjusted EPS from Continuing Operations of $3.75.”
Conference Call
SWM will hold a conference call to discuss this transaction with investors and analysts at 8:30 a.m. eastern time on Tuesday, November 19, 2013. You are invited to listen to the company’s conference call that will be broadcast live over the Internet.
What: SWM’s conference call announcing DelStar acquisition
When: Tuesday, November 19, 2013 at 8:30 a.m. Eastern Time
Where: http://www.swmintl.com
This link gives participants access to the live and/or archived event.
http://event.on24.com/r.htm?e=724483&s=1&k=581B8BA4E3EC876AB069EA6B29264A2C
How:
Call Participants – U.S. and Canada +1-800-803-9108 (conf i.d. 13667573)
International +1-706-758-2470
An operator will prompt participants to provide name, company name and phone number. For technical difficulties, press *0 and an operator will assist you.
Listen-only mode – Live over the Internet – Simply log on to the Web at the address above and follow the instructions set out on the Home page or in the Investor Relations section.
To listen to the live call, please go to the Web site at least 15 minutes prior to the call to register and to download and install any necessary audio software. For those unable to listen to the live broadcast, a replay will be available on the Web site shortly after the call.
About SWM
SWM is a leading provider of highly-engineered and proprietary solutions primarily for the tobacco industry. It also manufactures specialty papers for other applications. SWM and its subsidiaries conduct business in over 90 countries and employ about 2,500 people worldwide, with operations in the United States, France, Brazil, Canada, Poland and two joint ventures in China. For further information, please visit the company’s Web site at www.swmintl.com.
About DelStar
DelStar is one of the world’s leading manufacturers of thermoplastic nets, nonwovens, laminates, and extruded components. The company manufactures plastic and metal components used in a wide range of industries and markets, including filtration, automotive, healthcare, industrial, food, electronics and textiles. DelStar offers extensive custom services to meet customers’ exact specifications. With extensive profile extrusion operations, value-added capabilities and a highly specialized in-house machine shop, DelStar creates high-quality products that meet ever-changing product and market demands. Today, DelStar has employees in manufacturing, sales and distribution centers in the United States, Europe and the Asia. For further information, please refer to www.delstarinc.com.
About American Capital
American Capital, Ltd. (Nasdaq: ACAS) is a publicly traded private equity firm and global asset manager. American Capital, both directly and through its asset management business, originates, underwrites and manages investments in middle market private equity, leveraged finance, real estate, energy & infrastructure and structured products. American Capital manages $20 billion of assets, including assets on its balance sheet and fee earning assets under management by affiliated managers, with $117 billion of total assets under management (including levered assets). Through an affiliate, American Capital manages publicly traded American Capital Agency Corp. (Nasdaq: AGNC) with approximately $10 billion of net book value and American Capital Mortgage Investment Corp. (Nasdaq: MTGE) with approximately $1 billion of net book value. From its eight offices in the U.S. and Europe, American Capital and its affiliate, European Capital, will consider investment opportunities from $10 million to $750 million. For further information, please refer to www.AmericanCapital.com.