Adare to pay £23m for Prontaprint as shares rise

ADARE Printing is to acquire she British printing company Prontaprint for £23 million sterling. It is the single biggest acquisition in Adare's short history and, at £23 million, is almost equal to the combined value of all of Adare's acquisitions in the past five years.

And despite having a share price trading at an all time high, Adare has funded the acquisition through borrowings from a consortium of banks headed by AIB. But interest on Adare's borrowings are well covered in the years ahead and analysts believe the Prontaprint acquisition could boost Adare's earnings by 10 per cent in the 1996-1997 financial year.

Adare is paying £18.9 million sterling for the Prontaprint shares and is redeeming £4.1 million in loan stock. Adare has already received acceptances in respect of 96.43 per cent of the British group's shares.

Since being acquired in a management buyout in 1992 Prontaprint has reported steadygrowth, with pre tax profits rising from £2.2 million sterling in 1994 to £2.8 million in 1995 to just over £3 million in the 11 months to February 1996.

Results in the current financial year will be boosted significantly by the repayment of senior debt and the absence of the 15 per cent interest paid on Prontaprint's loan stock. Interest in the 11 months to February 1996 was £574,000.

Prontaprint is made up of three separate businesses. There is the eponymous chain of 250 franchised design and print centres in main retail locations in Ireland and Britain; and master franchises in South Africa, Denmark Hong Kong and Singapore which provide levy income.

The other businesses are the Carwin business forms manufacturer, and Fairfield, a supplier of specialised paper and film for digital imaging equipment. All three businesses are trading profitably, Adare's chief executive Mr Nelson Loane, told The Irish Times.

The three businesses complement Adare's existing print and light packaging in Ireland and Britain. Mr Loane said Adare planned to develop the established brand image of Prontaprint in a franchise format. Most of the Prontaprint brand business is franchised so Mr Loane expects growth to come through increasing volumes.

The acquisition will have an unusual effect on Adare's balanced sheet as the write off of £20 million of goodwill will put Adare into a situation of negative share holders' funds. It is, therefore, impossible to calculate the group's level of gearing. Interest cover is a far more appropriate gauge of Adare's ability to meet its financing obligations.

On this basis, Adare is well able to meet its obligations, with interest covered five times by expected operating profits in 1996-1997 and covered seven times in the 1997-1998 financial year. NCB Stockbrokers has estimated the acquisition will boost Adare's earnings per share in the 1996-1997 financial year by 10 per cent from 49.5 to 54.4p.

"We thought it was better to go all debt and the market seems to be saying it's the right way to do it, Mr Loane said. The interest on borrowings associated with the acquisition are linked to Dublin interbank rates.

Adare shares have risen by 25 per cent since the beginning of the year and jumped sharply last week after The Irish Times reported the Prontaprint acquisition. The shares reached an all time high of 540p yesterday before profit taking brought them back to 527 1/2p a rise of 2 1/2p on the day.

Adare itself is expected to report profits of around £8.3 million for the year to the end of April, up from £3.4 million the previous year. Much of this growth is the result of the £12 million acquisition of Mount Salus Press last year, although all of the group's businesses are thought to be trading well.