Management buyout proposed at Clondalkin Group

Clondalkin Group, the print and packaging company, has received an approach from its management team which is likely to lead to an offer of around €381 million (£300 million).

While the package is likely to take two months to complete, institutional investors who control around 50 per cent of the group are understood to favour the approach as they are reluctant investors in small capitalisation companies. The approach could lead to other management buyouts of other small companies which have poor share ratings.

The rise in the share price, from €6.12 to €6.80 this week, forced Clondalkin to make the brief statement yesterday. Clondalkin said it had "received an approach from certain members of its senior management team backed by a financial investor which may or may not lead to an offer. It is expected that any offer would be in the region of €9 per share. A further announcement will be made in due course".

The €9 represents a 47 per cent premium on the share price prior to the rise on Tuesday. Clondalkin's shares should reflect the bid talks and move sharply upwards this morning. The management team of between 34 and 36 people is likely to succeed and is being led by chief executive, Mr Norbert McDermott. They already own (with options) under 5 per cent of the company and the percentage they will own under the deal has not yet been worked out. It will depend on how much the individual executives can raise.

The overall deal is likely to be around £400 million; £300 million for the equity and about £100 million to take over the debt. The financial investor has not been identified, but it is thought to be a British venture capitalist which will take a substantial stake in the group.

Any deal would have to be approved by the non-executives and the proposals would then have to be put to the shareholders at an extraordinary general meeting. Mr Henry Lund, the non-executive chairman, would be excluded as he is a shareholder and would be participating in the management team. The others are Mr Ian Carmichael, who joined the group in 1986 when his company, The Cavendish Press, was acquired; Mr Paul McKee, an accountant and Mr Peter Roorda, a corporate law partner of Stibbe Simont Monahan and Duhot in Amsterdam.

Clondalkin employs 3,500 people and around 1,000 of these are in Ireland. Although it has recorded consistent growth, it has not been accorded a high rating in the market with a p/e of around 8.5. Institutions are likely to favour the approach as it will give them the opportunity to go liquid.

The major institutional investors are AIB with 10 per cent and Bank of Ireland Asset Management with 15 per cent, with around 5 per cent held by each of the following: Irish Life, Morgan Stanley Asset Management, Scottish Provident, and Ulster Bank Investment Manager. Clondalkin's latest results showed a 22 per cent rise in pre-tax profit from €34.45 million to €42.1 million. A breakdown in operating profit showed good gains in all geographical areas with the exception of the domestic market, which accounts for 11 per cent of sales. Its gearing amounted to 48 per cent and its interest payments were well covered at eight times.

Announcing the results, Clondalkin said the increase in business scale and the range of strong products, market and technological positions, offer many opportunities for continued development in the future. It has recorded an annual compound growth in earnings of 26 per cent over the past five years.

The group has also been very optimistic about the future. Its target is for mid-teen growth. This is planned to be achieved from its core operations and acquisitions.