REG - Coats Group PLC - Acquisition of Rhenoflex

CoatsAnnouncement

10/08/2022 16:45

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RNS Number : 6130V  Coats Group PLC  10 August 2022

10 August 2022

Acquisition of Rhenoflex for €115m (c.$117m)

Complementary and synergistic addition to Texon, expanding Coats' leading
position in the athleisure and sports footwear market

Coats Group plc ('Coats', the 'Group' or the 'Company'), the world's leading
industrial thread manufacturer, is pleased to announce it has signed a
definitive agreement to acquire 100% of Rhenoflex GmbH ('Rhenoflex'), one of
the leading global manufacturers of sustainable structural material solutions
for the footwear industry, for an enterprise value of €115m (c.$117m).
Following the recent acquisition of Texon, this represents a synergistic
bolt-on acquisition and a unique opportunity to strengthen Coats' position as
a global leader in footwear components.

The consideration will be funded via the proceeds of an equity placing, of up
to 10% of the Company's issued share capital (the "Placing"). The Placing is
being conducted through an underwritten accelerated bookbuilding process which
will be launched immediately following release of this announcement.

Transaction Highlights

·    Acquisition of Rhenoflex consolidates Coats' presence in highly
attractive and fast-growing athleisure and sports footwear market and
strengthens positioning with key global footwear brands

·    Highly complementary addition to Texon and Coats with complementary
product offerings across footwear components and fashion accessories

·    Combines two leading companies in structural footwear components with
enhanced scale, reach and capability with attractive commercial opportunities
to accelerate growth

·    Strengthens platform with combined sales from Rhenoflex, Texon and
Coats' Footwear and Accessories business at c.$425m on a last twelve-month
basis to June 2022

·    Enhances credentials in sustainability and expands breadth of
sustainable product innovations with addition of in-house R&D team

·    Significant value creation potential through realisation of cost
synergies through efficiencies in procurement and back-office of $6m,
incremental to $5m synergies from Texon, with combined synergies of $11m
resulting from the two transactions

·    Attractive purchase price represents 9.3x last twelve months to June
2022 EBITDA and 6.2x on a post-synergy basis

·    Consideration to be funded via 10% equity placing, with leverage to
remain within 1-2x target range maintaining strategic balance sheet
flexibility

 

Strategic Rationale

Rhenoflex is a highly complementary addition to Texon, supplying high quality
structural components to the premium global footwear market including heel
counters, toe puffs, interlinings and eyelets, alongside sustainable material
solutions for the luxury industry. Rhenoflex's strategic focus on
sustainability together with its reputation as a technology leader, further
enhances our portfolio of innovative offerings and strengthens our customer
proposition to leading footwear brands.

The combination of Rhenoflex and Texon provides Coats with a compelling
strategic opportunity to establish a global leader in the fragmented footwear
and fashion accessories market, with significant combined growth opportunities
through enhanced scale and capability. The acquisition is highly synergistic
and expected to generate annual cost synergies of $6m through efficiencies in
procurement and headcount. These are expected to be delivered by the end of
the first full year of ownership with a one-off cash cost of $5m. Cost
synergies from both Texon and Rhenoflex acquisitions are expected to total
$11m. Integration of the business with Coats will be overseen by a dedicated
team.

Transaction Structure

Under the terms of the transaction, Coats has agreed to pay an Enterprise
Value of €115m (c.$117m), which represents total cash consideration of
€107m (c.$110m) after deducting assumed retirement liabilities and other
customary adjustments. This represents an attractive multiple of approximately
9.3x last twelve months to June 2022 EBITDA and 6.2x on a post-synergy basis.

The acquisition will be funded through an equity fundraising of up to 10 per
cent of the Company's issued share capital, announced separately today. It is
expected that following the placing, net leverage will remain well within our
target range of 1-2x, maintaining our robust balance sheet for strategic
flexibility. The combination of both Texon and Rhenoflex is EPS accretive to
Coats from the first full year of ownership, whilst the acquisition of
Rhenoflex on a standalone basis is marginally dilutive, given the equity
placing. The acquisition is expected to complete by the end of August.

Rajiv Sharma, Coats Group Chief Executive, said:

"We are delighted to announce the acquisition of Rhenoflex, which presents an
exciting and synergistic opportunity for Coats to establish a leading global
platform in footwear components, expanding our presence in the fast-growing
athleisure footwear market. Rhenoflex is a high quality business that is
complementary to both Texon and Coats and its strategic focus on
sustainability and innovation will significantly enhance our proposition to
customers."

Lazard is acting as financial adviser to the Company.

A presentation for analysts and investors will be held at 5.00pm BST today,
available via:

https://www.investis-live.com/coats/62f12fdd14e08212000bfdf3/po88
(https://nam02.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.investis-live.com%2Fcoats%2F62f12fdd14e08212000bfdf3%2Fpo88&data=05%7C01%7C%7Cc1e23453ac904fa7d87908da7a01cf9c%7C98b918a86d8a456ba32fb6fdc6b6a653%7C0%7C0%7C637956445454845033%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000%7C%7C%7C&sdata=kQGV7O5irzJNw1U37cvDLrXh%2FW3wLvPP3wjyFwY8Xi4%3D&reserved=0)

For further information please contact:

 Coats Group plc                    +44 (0)20 8210 5090

 Nick Kidd

 Lazard (Financial Adviser)         +44 (0)20 7187 2000

 Richard Shaw / James Cliffe

 FTI (Media)

 Richard Mountain / Nick Hasell     +44 (0)20 3727 1374

 

Additional Information on Rhenoflex

Rhenoflex is a pioneer of sustainable reinforcement solutions in the footwear
and lifestyle sector. The business supplies high quality structural footwear
components including heel counters, toe puffs, interlinings and eyelets,
alongside sustainable material solutions for the luxury industry. The business
has a global footprint with manufacturing operations in Vietnam, China and
Germany providing close proximity to major global footwear manufacturing hubs
and luxury brands. For the year ended 31 December 2021, Rhenoflex reported
revenue of c.€65m (c.$66m) and operating profit of c.€7m (c.$7m). Gross
assets subject to the transaction are c.€63m (c.$64m).

Important Notices

This announcement contains inside information for the purposes of the Market
Abuse Regulation (Regulation (EU) No 596/2014) including as it forms part of
domestic law in the United Kingdom by virtue of the European Union
(Withdrawal) Act 2018. This announcement is issued on behalf of the Company by
Jackie Callaway, Chief Financial Officer at 4.36pm BST on 10 August 2022.

Lazard & Co., Limited ("Lazard"), which is authorised and regulated in the
United Kingdom by the FCA, is acting as financial adviser to the Company, and
no one else, in connection with the matters set out in this announcement, and
will not be responsible to anyone other than the Company for providing the
protections afforded to clients of Lazard nor for providing advice in relation
to the contents of this announcement or any other matter or arrangement
referred to herein. Neither Lazard nor any of its affiliates owes or accepts
any duty, liability or responsibility whatsoever (whether direct or indirect,
whether in contract, in tort, under statute or otherwise) to any person who is
not a client of Lazard in connection with this announcement, any matter,
arrangement or statement contained or referred to herein or otherwise.

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