As legendary investor Warren Buffet succinctly puts it: “it is better to buy great companies at fair prices, rather than fair companies at great prices”. Today, we think Mpac has done exactly that by acquiring Ohio based Switchback Group, Inc. for a maximum of $15m in cash (£11.4m). Equivalent to modest takeover multiples of 7.1x EV/EBIT and 1.1x EV/sales – with $13m of the consideration paid upfront, and the rest structured as a $2m earnout depending on EBITDA performance over the next 24 months.
Better still, we believe the strategic logic is compelling. Why? Well the beauty of the deal is that the firms’ products are complementary and have little (or no) direct overlap within the same packaging machinery & automation solutions hierarchy. Both organisations serving a wide range of food, beverage and healthcare clients, with Switchback possessing further bench strength in the expanding US craft beers segment (+3.6% organic – see overleaf).
Consequently Switchback’s $14.2m 2019 turnover ($2.1m PBT) should be incremental and highly synergistic in terms of future cross selling, geographical expansion & cost saving opportunities. In particular, Switchback has no presence in Europe, possesses minimal aftermarket support & is already bumping up against capacity constraints. Thus potentially benefitting quickly from Mpac’s broader international footprint, existing infrastructure and service proposition. Similarly Switchback’s product range provides additional “breadth and depth” to Mpac’s cartoning & end of line solutions.