Kingspan opens ‘new frontier’ with €60m deal in US

Merrion Capital estimates Kingspan has a potential €400 million acquisitions warchest

Gene Murtagh, Kingspan chief executive. Photograph: Alan Betson

Gene Murtagh, Kingspan chief executive. Photograph: Alan Betson

Tue, Aug 19, 2014, 01:00

FIONA REDDAN Kingspan, the building materials and insulation group, has positioned itself for a tilt at the rapidly improving US housing market with the purchase of the building insulation division of US company Pactiv for $82 million (€61million). Analysts said the deal, its first foray into the residential market

in the US, where it already has an industrial business, should help it to crack the market for energy efficient homes.

With that sector set to grow as the US is expected to upgrade building energy efficiency regulations, analysts speculated Kingspan may be looking for similar acquisitions.

Flor O’Donoghue of Davy stockbrokers, who described the Pactiv deal as “strategically important”, said Kingspan was heading for net debt of zero by the end of 2015, giving it plenty of scope to finance buyouts.

“They see themselves as a growing business, and they’re not really the type to do share buybacks [to deploy unused capital],” he said. “The US will become more important and there is still a lot of scope [on the balance sheet] . . .”

David Holohan, head of research at Merrion Capital, estimated Kingspan may have up to €400 million for bolt-on acquisitions.

“Kingspan had to decide whether to acquire an existing brand in the US or go in with a greenfield offering that would have taken much longer. The challenge was to find something at a good price. It was worth the wait,” said Mr Holohan. He said the firm would likely use Pactiv as a “conduit” for the brands the Irish company sells this side of the Atlantic.

“Management has made no secret of its desire to do more US business,” he said. Kingspan derives about 14 per cent of group revenues from its US industrial arm. Mr Holohan said he expected its US sales to rise to “the high teens” in percentage terms.

‘Big opportunity’

Robert Eason of Goodbody stockbrokers said US housing starts have recovered to about one million homes per annum, but the historically sustainable level is about 1.5 million: “That’s a big opportunity for the company.” Pactiv, 75 per cent focused on housing, produces insulation products under the GreenGuard brand which it supplies throughout the US from its manufacturing base in Virginia.

The business had sales of $84 million in the year to June 2014, and recorded an operating profit of $10 million. The enterprise value is $82 million, of which $72 million is payable in cash on completion plus $10 million of working capital. Gross assets being acquired are $30 million, Kingspan said.

Gene Murtagh, Kingspan chief executive, said the acquisition represents “a new and exciting frontier” for the company’s business in North America.

“It is a tremendous opportunity . . . to build upon the growing success of our existing insulated panel business throughout the region,” he said.