Accrol Group Holdings plc (LON:ACRL) has announced that it has today published a shareholder circular in relation to the Scheme, setting out, amongst other things, a letter from the Executive Chairman of Accrol, the full terms and conditions of the Scheme, an explanatory statement, an expected timetable of principal events, notices of the required Court Meeting and the General Meeting and details of the action to be taken by shareholders of Accrol, which will be published on Accrol’s website at https://www.accrol.co.uk/investors/recommended-offer-for-accrol-group-holdings-plc/.
Subject to any restrictions relating to persons resident in Restricted Jurisdictions, hard copies of the Scheme Document and the Forms of Proxy for the Meetings are being posted to shareholders of Accrol today and, for information purposes only, being made available to participants in the Accrol LTIP and other persons with information rights.
Capitalised terms used in this announcement (the “Announcement“) shall, unless otherwise defined herein, have the same meanings as set out in the Scheme Document. All references to times in this Announcement are to London, United Kingdom times unless stated otherwise.
Summary of the terms of the Offer
Under the terms of the Offer, which is subject to the Conditions and certain further terms set out in Part III (Conditions to the implementation of the Scheme and to the Offer) of the Scheme Document, Accrol Shareholders will be entitled to receive:
38 pence in cash for each Accrol Share
The Offer values the entire issued and to be issued share capital of Accrol at approximately £127.5 million and implies an enterprise value of approximately £184.8 million and a multiple of approximately:
· 11.9x using Accrol FY2023A adjusted EBITDA of £15.6 million; and
· 9.9x using Accrol LTM (last twelve months) adjusted EBITDA of £18.7 million for the period ended 31 October 2023.
The Offer represents a premium of approximately 47 per cent. to the average EV/LTM EBITDA multiple of 6.7x for publicly traded companies across private label tissue, private label hygiene and other UK companies that focus on private label products.
The Offer represents a premium of approximately:
· 11.8 per cent. to the Closing Price of 34.0 pence per Accrol Share on 21 March 2024 (being the last Business Day before the commencement of the Offer Period);
· 28.7 per cent. to the Volume Weighted Average Price per Accrol Share during the 6-month period ended on 21 March 2024; and
· 23.2 per cent. to the Volume Weighted Average Price per Accrol Share during the 12-month period ended on 21 March 2024.
When the Accrol Directors reviewed the Offer in the context of the multiples observed in the private label sector (in tissue, hygiene and other in UK & Ireland) for publicly traded companies and comparable precedent transactions, they believe the Offer represents an attractive premium and full value for the business.
Background to and reasons for the Accrol Directors’ recommendation
Since its initial public offering in 2016 and subsequent Strategic Review (as defined below), Accrol has demonstrated a track record of delivering on its growth strategy through organic growth, product expansion, cost optimisation and an effective acquisition strategy to become a leading converter and supplier of tissue-based products and wet wipes to many of the UK’s leading discounters and retailers across the UK.
Accrol has been able to grow, gaining market share largely at the expense of the branded product offering by adapting its product portfolio in order to supply high quality products at a competitive price advantage when compared to the major branded providers. The growth of the large European discounters in the UK retail market has provided further opportunity for Accrol to continue to gain market share.
The UK is (and has been) a net importer of jumbo tissue paper reels. In the last decade, some of Accrol’s competitors have invested in circa. 190kt of annual domestic production, mainly to supply their own converting operations in order to increase their level of integration and competitiveness. Accrol started its major growth path (5 years ago) through a series of capital investments in converting capacity and automation, to win market share from branded tissue suppliers as the market moved towards private label through the expansion of discount retailers (Aldi, Lidl, etc). However, the supply dynamics in the UK are set to change. Multiple European and Turkish tissue suppliers have indicated and commenced investments to expand their operations in the UK by investing in brand new, state-of-the-art tissue making and converting facilities in the coming years (circa. 500kt of tissue paper reels). It is anticipated that this will make the UK market significantly more competitive and has the potential to disrupt volume growth and margin stability as new entrants seek to establish a foothold in market share.
Whilst the management team maintain confidence that Accrol could thrive as an independent business, they are also of the view that the balance of risk and reward has shifted due to the significant inward investment into the UK market and that Navigator’s Offer fairly and reasonably represents the future financial prospects of the business.
Accrol conducted a detailed and in-depth strategic review in 2022 (concluding in January 2023) (“Strategic Review“), where the primary conclusions were to address the imperative to integrate paper production and develop market and product strategies to further expand market presence. The imperative to integrate the paper production element of the supply chain continues to grow. Volatility in input costs is exacerbated as a converting-only business and customer perception with regard to the benefits of vertical integration continues to harden. It is evident that integration with an established producer would both reduce the financial and operational risks of commissioning production as well as accelerate the business’ strategy in terms of market and product development.
In order to offer greater security over its supply chain and margin stability, the management team has developed a business plan to invest in vertical integration via the development of a new tissue mill facility. The debt profile of Accrol throughout this period will naturally increase significantly which potentially creates competing priorities around capital allocation for shareholders with differing strategic priorities, as well as heightened costs of borrowing currently prevalent in the market. Such a development does also carry notable execution, commissioning and operational risks which require careful consideration. In addition, some of the announced tissue mill plans by fully integrated independent groups also now include their own power plant investments to offer greater stability over margin following volatility in the energy market in the recent past. Such power plant investments can deliver notably lower energy costs but require significant additional investment which would stretch the Accrol balance sheet further as well as adding further operational and construction complexity.
As part of the Strategic Review the business held discussions with a considerable number of strategic and financial market participants. Some of these discussions continued in the period after the Strategic Review up until recently, given the imperatives to develop production and market-penetration plans.
Discussions with Navigator regarding a more comprehensive partnership commenced in Q3 2023, as an alternative to independent integration. In part, this reflected a subsidiary conclusion of the Strategic Review in respect of the current management and shareholders’ concerns regarding the scale of investment, the corresponding risks of over-leveraging the business ahead of the earnings accretion from developing the tissue mill investment and a general preference for liquidity. These concerns have led to the management team being open to alternative solutions as a means to enhancing growth and achieving its strategic objectives.
Whilst Accrol continues to be well positioned for continued success as an independent listed entity, the market is and will continue to change rapidly with significant pricing pressure for a non-integrated business. Therefore the Accrol Directors strongly believe that the Offer fairly reflects the strength of the business today and its future prospects, providing shareholders with an opportunity to realise their investment in Accrol, in cash, at an attractive price and a favourable acquisition multiple.
When the Accrol Directors reviewed the multiple of 11.9x EV/FY2023A EBITDA and 9.9x EV/LTM EBITDA to a sample of its closest publicly traded peers, the Offer represents a premium of approximately 47 per cent. to the average EV/LTM EBITDA multiple of 6.7x for publicly traded companies across private label tissue, private label hygiene and other UK companies that focus on private label products. Also when looking at comparable transaction multiples in this sector in the last decade, the Offer represents an attractive premium.
In considering the financial terms of the Offer, the Accrol Directors have taken into account a number of factors, including:
· The goodwill and trusted relationship generated by Accrol with the largest UK retailers can be further enhanced by having an owner that is vertically integrated into the manufacturing of tissue and that has existing established relationships with retailers in continental Europe, particularly in the Iberian Peninsula.
· As stated, the vertical integration into the manufacturing of tissue paper is part of the core future strategic objectives identified by the Accrol Directors. These objectives include margin improvement potential, limited margin volatility and security of tissue supply. In order to achieve this, the Accrol Directors believe that building a brand new tissue mill is required. The construction of such a mill however does include several financial, commissioning and operational risks that cannot be ignored by Accrol Directors. Furthermore, Accrol will be required to raise additional debt financing for the investment. These risks are eliminated by the Offer and the integrated model of Navigator in the manufacturing of paper and tissue.
· The Offer represents an attractive EV/EBITDA multiple:
· 11.9x using Accrol FY2023A adjusted EBITDA of £15.6 million; and
· 9.9x using Accrol LTM (last twelve months) adjusted EBITDA of £18.7 million for the period ended 31 October 2023.
· As stated above, the Accrol Directors have looked at the tissue sector Accrol and Navigator operate in when assessing the Offer. Taking into account relevant acquisitions and publicly listed private label companies, the Offer represents an attractive premium and full value for the business.
· The Offer represents a premium of:
· 11.8 per cent. to the Closing Price per Accrol Share of 34.0 pence on 21 March 2024 (being the last Business Day before the commencement of the Offer Period);
· 28.7 per cent. to the Volume Weighted Average Price per Accrol Share of 29.5 pence for the 6-month period ended on 21 March 2024; and
· 23.2 per cent. to the Volume Weighted Average Price per Accrol Share of 30.8 pence for the 12-month period ended on 21 March 2024.
As a result, after careful consideration of the value and deliverability of the Offer, the Accrol Directors believe that the Offer represents a compelling proposition for Accrol Shareholders to accelerate and de-risk the potential future value creation, and to realise an immediate and certain cash exit for their investment at a premium to the prevailing share price. Fundamentally, remaining as a public company presents real execution risks via vertical integration in a significantly more competitive market given recent and planned investments from competitors. As referred to above, the management team has held multiple meetings with industrial players, and similarly with financial sponsors, over the course of the last 12 months to find the most appropriate partner for the business and the one who would offer best value. The management team have concluded that Navigator’s Offer represents the best option to accelerate growth and provide greater certainty of Accrol’s long-term success, and is therefore the best outcome for Accrol Shareholders.
In addition, the Accrol Directors have also spent considerable time reviewing Navigator’s intentions regarding the conduct of Accrol under their ownership, including the potential impact of Navigator’s ownership on the interests of its other stakeholders including Accrol’s employees, and are confident that Navigator will protect stakeholder interests appropriately.
Bases of calculation and sources of information
In this Announcement, unless otherwise stated, or the context otherwise requires, the following bases and sources have been used:
· The fully diluted equity value of Accrol has been calculated as being approximately £127.5 million on the basis of a fully diluted issued ordinary share capital of 335,444,589 Accrol Shares, being:
(a) 318,878,097 Accrol Shares in issue as at the Last Practicable Date; plus
(b) 16,566,492 Accrol Shares to be issued on the expected exercise of options granted or expected to be granted under the Accrol LTIP on the exercise of options under the Accrol LTIP,
(excluding the Warrants (as the outstanding Warrants are to be surrendered by the Warrant Holder and cancelled upon the Offer becoming Effective)).
· The enterprise value of Accrol has been calculated as being approximately £184.8 million on the basis of:
(a) Accrol’s fully diluted equity value of approximately £127.5 million (as calculated above); plus
(b) Accrol’s net debt of approximately £57.4 million calculated as per note 9 of Accrol’s interim results for the 6 months ended 31 October 2023 published by Accrol on 30 January 2024. This includes: total borrowing (excluding finance fees); less: lease receivables; less: cash and cash equivalents.
· Accrol’s LTM (last twelve months) adjusted EBITDA of £18.7 million for the period ended 31 October 2023 has been calculated by reference to Accrol’s adjusted EBITDA of £15.6 million (as published in its audited consolidated accounts for the 12 months ended 30 April 2023) less Accrol’s adjusted EBITDA of £7.1 million (as published in its interim results for the 6 months ended 31 October 2022) plus Accrol’s adjusted EBITDA of £10.2 million (as published in its interim results for the 6 months ended 31 October 2023).
· The premia calculations to the price per Accrol Share used in this document have been calculated by reference to:
(a) the Closing Price on 21 March 2024 (being the last Business Day before the commencement of the Offer Period) of 34.0 pence per Accrol Share;
(b) the Volume Weighted Average Price of 29.5 pence per Accrol Share during the 6-month period ended on the last Business Day before the commencement of the Offer Period); and
(c) the Volume Weighted Average Price of 30.8 pence per Accrol Share during the 12-month period ended on the last Business Day before the commencement of the Offer Period).
· Unless otherwise stated, the financial information of Accrol is extracted (without material adjustment) from the annual report and audited accounts of the Accrol for the 12 months ended 30 April 2023).
· Certain figures included in this Announcement have been subject to rounding adjustments.
Recommendation
The Accrol Directors, who have been so advised by Stifel as to the financial terms of the Offer, consider the terms of the Offer to be fair and reasonable. In providing their advice to the Accrol Directors, Stifel has taken into account the commercial assessments of the Accrol Directors. Stifel is providing independent financial advice to the Accrol Directors for the purposes of Rule 3 of the Code.
Accordingly, the Accrol Directors recommend unanimously that Scheme Shareholders vote in favour (or procure votes in favour) of the Scheme at the Court Meeting and that Accrol Shareholders vote in favour (or procure votes in favour) of the Resolution at the General Meeting, as the Accrol Directors who hold Accrol Shares have irrevocably undertaken to do (or procure to be done) in respect of their own (and their connected persons) interests in Accrol Shares, amounting, in aggregate to 17,124,230 Accrol Shares (representing, in aggregate, approximately 5.4 per cent. of the issued share capital of Accrol as at the Last Practicable Date).
In addition to the irrevocable undertakings given by the Accrol Directors, Bidco has also received an irrevocable undertaking to vote (or procure the voting) in favour of the Scheme at the Court Meeting and the Resolution at the General Meeting from Lombard Odier Asset Management (Europe) Limited in respect of 91,403,124 Accrol Shares, in aggregate, representing approximately 28.7 per cent. of Accrol’s issued share capital as at the Last Practicable Date. In aggregate therefore, Bidco has received irrevocable undertakings to vote in favour of the Scheme at the Court Meeting and the Resolution at the General Meeting from the holders of 108,527,354 Accrol Shares in total, representing approximately 34.0 per cent. of Accrol’s issued share capital as at the Last Practicable Date.
Notices of the Court Meeting and General Meeting and Action to be taken
As described in the Scheme Document, in order to become Effective the Scheme will require, among other things, that the requisite majority of (i) eligible Scheme Shareholders vote in favour of the Scheme at the Court Meeting; and (ii) eligible Accrol Shareholders vote in favour of the Resolution at the General Meeting. The Scheme is also subject to the satisfaction or waiver of the other Conditions and further terms as described more fully in the Scheme Document.
The Court Meeting and the General Meeting to approve the Scheme (and the steps contemplated by the Scheme) are scheduled to be held at 11:00 am and 11:15 am (or as soon thereafter as the Court Meeting concludes or is adjourned) respectively, each on 15 May 2024 at the offices of Addleshaw Goddard LLP at One St Peter’s Square, Manchester, M2 3DE.
Subject to approval at the Meetings, Court approval and the satisfaction or waiver of the other Conditions set out in further detail in the Scheme Document, the Scheme is expected to become Effective on or around 24 May 2024.
Shareholders of Accrol are asked to submit proxy appointments and instructions for the Court Meeting and the General Meeting as soon as possible, using any of the methods described in the Scheme Document (by post, online or electronically through CREST). Shareholders of Accrol are also strongly encouraged to appoint “the chairman of the meeting” as their proxy.
It is important that, for the Court Meeting in particular, as many votes as possible are cast so that the Court may be satisfied that there is a fair representation of Scheme Shareholders (as that term is defined in the Scheme Document) opinion. Therefore, Scheme Shareholders are strongly urged to sign and return both of their Forms of Proxy (by post, online or electronically through CREST).
Any changes to the arrangements for the either the Court Meeting or General Meeting will be communicated to shareholders of Accrol beforehand, through Accrol’s website at https://www.accrol.co.uk/investors /recommended-offer-for-accrol-group-holdings-plc/ and by announcement through a Regulatory Information Service.
Timetable
The Scheme Document contains an expected timetable of principal events relating to the Scheme, which is also set out in the Appendix to this Announcement. Subject to obtaining the approval of the requisite majority of eligible Scheme Shareholders at the Court Meeting, the requisite majority of Accrol Shareholders at the General Meeting and the satisfaction or waiver of the other Conditions set out in the Scheme Document, including the approval of the Court, it is currently expected that the Effective Date will be 24 May 2024.
Cancellation of admission to trading
If the Scheme is sanctioned as outlined above, the last day of dealings in, and for registration of transfers of, Accrol Shares is expected to be 23 May 2024 (being the Business Day immediately before the Effective Date), following which Accrol Shares will be suspended from trading on AIM with effect from 7:30 a.m. on the Effective Date.
Accrol intends that, prior to the Scheme becoming Effective, an application will be made to the London Stock Exchange for the cancellation of the admission to trading of the Accrol Shares on AIM with effect from shortly after the Effective Date.
Information for Accrol Shareholders
In accordance with Rule 26.1 of the Takeover Code, copies of this Announcement and the Scheme Document will be available on Accrol’s website at https://www.accrol.co.uk/investors/recommended-offer-for-accrol-group-holdings-plc/ and on Navigator’s website at https://www.thenavigatorcompany.com/Investidores/Recommended-cash-offer-for-accrol-group-holdings-plc by no later than 12 noon on the business day following this Announcement, up to an including the Effective Date. For the avoidance of doubt, the contents of these websites are not incorporated by reference and no not form part of this Announcement.
For information purposes only, the Scheme Document will also be sent, or made available to, to participants in the Accrol LTIP and persons with information rights.
A copy of the Scheme Document will also be submitted to the National Storage Mechanism, where it will be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism
Shareholder helpline
If shareholders of Accrol have any questions about this Announcement, the Scheme Document, the Court Meeting or the General Meeting, or are in doubt about the procedure for completing and returning of the Forms of Proxy or how to appoint a proxy through the CREST electronic proxy appointment service or otherwise, please contact Link Group, Accrol’s Registrar, on +44 (0) 371 664 0321. Lines are open from 9:00 a.m. to 5:30 p.m. Monday to Friday (excluding English and Welsh public holidays). Calls to these numbers from outside the UK will be charged at international rates. Different charges may apply to calls made from mobile telephones. Calls may be recorded and randomly monitored for security and training purposes. Please note that Link Group cannot provide legal, tax or financial advice.
