AptarGroup To Acquire FusionPKG For Fast Beauty Packaging

AptarGroup To Acquire FusionPKG For Fast Beauty Packaging

Quick Take

AptarGroup (ATR) has announced the proposed acquisition of FusionPKG for an undisclosed amount.

FusionPKG has developed a line of high-quality airless and color cosmetic packaging products.

With the deal, ATR gains an offering for emerging brands needing a full range of service and large brands requiring fast product launch capabilities.

The ATR stock appears overvalued at its current level, given the firm’s spotty revenue growth performance in recent years and generous DCF assumptions, so my bias is NEUTRAL.

Target Company

Dallas, Texas-based FusionPKG was founded to develop a wide range of cosmetics packaging for airless and color applications.

Management is headed by co-founders Derek Harvey and Jonathan Gross, who were both educated at the University of Arizona.

Below is an overview video of FusionPKG:

Source: Fusion Packaging

Market & Competition

According to a 2019 market research report by Grand View Research, the global market for cosmetic packaging products will likely reach an estimated $35 billion by 2025.

This represents a forecast CAGR (Compound Annual Growth Rate) of 4.8% from 2019 to 2025.

The main drivers for this expected growth are increasing demand for cosmetic products due to changing grooming habits among both males and females as well as growing discretionary income available for purchasing products. For example, the U.S. cosmetic packaging market growth breakdown by cosmetic type is shown below:

Major vendors that provide cosmetic packaging services include:

  • Albea

  • HCP Packaging

  • RPC Group (OTCPK:RPCGF)

  • Silgan Holdings (SLGN)

  • Bemis Company

  • DS Smith (OTC:DITHF)

  • Graham Packaging

  • Libo Cosmetics

  • AptarGroup

  • AREMIX Packaging

Source: Research Report

Acquisition Terms & Financials

AptarGroup didn’t disclose the acquisition price or terms and didn’t file a Form 8-K, so the deal was likely for a financially non-material amount.

Based on a basket of Packaging and Container public company comparables compiled by the NYU Stern School which had a price/sales multiple of 0.98 in January 2020, FusionPKG’s 2019 sales of $80 million would likely result in a purchase price of the same amount.

Management didn’t provide a change in financial guidance as a result of the proposed transaction. The firm will provide additional details at its February 21 earnings conference call.

A review of the firm’s most recent published financial results indicates that as of September 30, 2019, AptarGroup had $270.6 million in cash and equivalents and $1.9 billion in total liabilities of which $1.05 billion was long-term debt.

Free cash flow for the twelve months ended September 30, 2019, was $301.6 million.

In the past 12 months, AptarGroup’s stock price has risen 14.5% vs. the U.S. Packaging industry’s growth of 12.1% and the U.S. overall market index’s rise of 20.1%, as the ATR chart indicates below:

Source: Simply Wall St.

Earnings surprises versus analyst consensus estimates have been positive in ten of the last twelve quarters, as the chart shows below:

Source: Seeking Alpha

Valuation Metrics

Below is a table of relevant capitalization and valuation figures for the company:

Measure

Amount

Market Capitalization

$7,460,000,000

Enterprise Value

$8,450,000,000

Price / Sales

2.57

Enterprise Value / Sales

2.94

Enterprise Value / EBITDA

13.98

Free Cash Flow [TTM]

$301,600,000

Revenue Growth Rate

6.20%

Earnings Per Share

$3.55

Source: Company Financials

Below is an estimated DCF (Discounted Cash Flow) analysis of the firm’s projected growth and earnings:

Assuming the above generous DCF parameters, the firm’s shares would be valued at approximately $74 versus the current price of $116, indicating they are potentially currently overvalued, with the given earnings, growth, and discount rate assumptions of the DCF.

Commentary

ATR is acquiring FusionPKG to add its expertise in turnkey services which are relevant for emerging, independent brands.

As AptarGroup President and CEO Stephan Tanda stated in the deal announcement:

This is a key step in our strategy to address market demands for fast beauty solutions with differentiated design and decorative offerings. We are strengthening our formidable portfolio by broadening our agile design and full-service beauty packaging capabilities. FusionPKG’s expertise in turnkey solutions is especially valuable to disruptive indie brands, as well as large established customers requiring expeditious launches.

With the deal, ATR plans to scale FusionPKG’s capabilities into Europe and other regions where independent brands need full-service options and large brands seek fast launches for new products.

While we don’t know the amount ATR is paying, the deal makes sense to me, as innovation in cosmetics is increasing its pace, both with emerging brands and with established companies.

While the acquisition won’t move the needle for ATR stock in the near term, I agree with management’s resource allocation for this growing area and customer need.

The bigger question is ATR’s stock valuation, which appears excessive based on generous DCF terms.

The firm has had a spotty record of revenue growth (or contraction) since 2017 and management produced an earnings miss in the most recent reported quarter.

To justify the stock’s current valuation, ATR will need to grow revenue and earnings significantly, in my view. My current bias is NEUTRAL.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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