Irish paper and packaging business Smurfit Kappa enters Brazil

Irish paper and packaging business, Smurfit Kappa Group has extended its presence in the Americas with the purchase of two Brazilian businesses for €186m. The two companies are privately-owned integrated packaging businesses.

The acquisition of Industria de Embalagens Santana and Paema Embalagens offers the Dublin-based group “a strong entry point” into a market it has been looking at for some time and means it now has a presence in every country in South America.

Smurfit Kappa Group is already the leading pan-regional packaging player in Latin America and this move will improve its packaging offering to multinationals operating in the Americas.

The two Brazilian companies have net assets worth around €30m and capacity of 210,000 tonnes from three recycled containerboard mills and four corrugated facilities.

The completed transaction — funded from Smurfit Kappa Group’s existing liquidity (mainly cash resources, plus credit facilities) — will be immediately earnings accretive.

Irish packaging giant Smurfit Kappa moves into #Brazil with two key acquisitions worth €186 million. https://t.co/8AYZOeKTQX

— Arsht Latin America Center & Caribbean Initiative (@ACLatAm) January 4, 2016

The businesses employ over 1,700 people and Smurfit Kappa Group expects to generate around €6m by the end of 2017 from the pair.

This will be primarily through operational improvements and supply chain optimisation as the businesses are integrated.

Despite the positive news, Smurfit Kappa Group’s share price dipped by over 2% early yesterday, although that dip was pared back to under 1% by the end of yesterday’s session.

Nevertheless, Davy Stockbrokers has reiterated its share price target of €32 for the group, 36% above where it currently stands.

“Smurfit Kappa Group has, for some time, indicated its desire to enter the Brazilian market but to date acquisition multiples have proven too rich.

“The deal now extends Smurfit Kappa Group’s reach to the entire South American continent and further enhances the company’s desire to build its platform in the Americas,” said Davy’s Barry Dixon.

David O’Brien of Goodbody noted the significance of the Brazilian market, in its own right, as well as the chance to enhance Smurfit Kappa Group’s overall presence in Latin America.

In November, Smurfit Kappa Group reported a 1% annualised jump in revenue for the first nine months of the year to just over €6bn; with profits rising by 27% to €408m.

A strong showing from the Americas division helped drive the growth.