REG - Coats Group PLC - Acquisition

CoatsAnnouncement

16/07/2025 16:45

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RNS Number : 3620R  Coats Group PLC  16 July 2025

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THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION.

 

Coats Group PLC

16 July 2025

Acquisition of OrthoLite Holdings LLC  ("OrthoLite") and Proposed Capital
Raise, accelerating Footwear growth strategy through combination with global
leader in insole technology

 

Coats Group plc ('Coats', the 'Company' or the 'Group') is pleased to announce
it has signed a definitive agreement to acquire OrthoLite Holdings LLC
 ('OrthoLite') (the "Acquisition"), the global market leader of premium
insoles, for an initial Enterprise Value of $770m.

The consideration will be funded through a combination of new debt facilities
with Coats' existing lenders and proceeds of an equity placing of up to 19.99%
of issued share capital (the "Placing"). The Placing follows the announcement
of Coats 2025 Interim Results and is being conducted through an accelerated
bookbuilding process which will be announced separately and launched
immediately. In conjunction with the Placing, the Company intends to make an
offer of new ordinary shares to retail investors, which will also be announced
separately.

Coats has agreed to pay an initial Enterprise Value of $770m in respect of
the Acquisition. This represents a multiple of 10.0x EV / EBITDA 1  (#_ftn1) ,
reducing to less than 8.0x on a post-synergy basis, which includes $20m of
initial joint annualised cost synergies to be delivered by 2028. A further
contingent payment of up to $10m is payable based on potential EBITDA
performance in 2025. The transaction is expected to close in Q4 2025.

Transaction Highlights

·      Compelling strategic fit accelerating Coats' strategy to create a
'super tier 2' supplier for footwear components, significantly strengthening
the existing Coats footwear business through expansion into the attractive,
high-growth premium insole segment

·      Highly complementary to Coats' existing footwear business, with
significant overlap in customer base, route-to-market and operational
footprint, providing attractive future commercial opportunities to accelerate
growth through innovation and cross-selling

·      Significant initial annualised joint cost synergies identified of
$20m expected to be delivered by 2028 from savings in joint footprint
optimisation, operational excellence, strategic procurement and support
functions, leveraging Coats' experience of successfully delivering synergies
from footwear acquisitions

·      Attractive financial effects, accelerating the delivery of Coats'
existing medium-term targets; enhancing Group EBIT margins and EPS accretive
from the first full year, with ROIC exceeding WACC by 2028, and strong
operating cash conversion of 90%+ supporting Group free cash flow growth

·      Acquisition of a high-quality business further improves the
quality of Group earnings, shifting balance towards the high-growth,
high-margin footwear segment

·      Consideration to be funded through a combination of new debt
facilities with Coats' existing lenders and proceeds of an equity placing of
up to 19.99% of issued share capital, with expected pro-forma net leverage of
2.2x at December 2025, falling to below 2.0x by the end of 2026

Commenting on the Acquisition, David Paja, Coats Group Chief Executive said:

"The combination of Coats and OrthoLite is fantastic news for both companies
and for the footwear industry. It brings together two global leaders in
adjacent segments of the footwear components sector with a shared vision for
innovation and sustainability and with unparalleled brands and customer
relationships.

We look forward to working with Glenn Barrett and the OrthoLite team,
leveraging our combined strengths to reshape the future of the footwear
components industry."

Glenn Barrett, founder and CEO of OrthoLite, added:

"I'm excited to merge OrthoLite, the footwear innovation business that I
founded 28 years ago, with Coats Group plc.

This alliance forms a powerful partnership of industry leaders to provide a
platform for OrthoLite and Cirql to continue to serve our customers with the
most innovative and sustainable footwear components in the world."

Overview of OrthoLite

OrthoLite was founded in 1997 and is the global market leader in open-cell
foam insoles with a c.36% share of the addressable market. It operates in an
attractive, fast-growing segment of the footwear market with strong tailwinds
for growth as brands increasingly adopt open-cell technology due to its
superior benefits in terms of comfort, performance and sustainability.
OrthoLite supplies over 500m pairs of insoles a year to around 550 brand
customers and has more than 310 co-branding agreements. OrthoLite has a
strategically-located global footprint of 14 production facilities, providing
the business with operational flexibility to serve its customers locally.

The transaction also includes Cirql, a newly-developed proprietary foam
technology targeting the midsole market with a biodegradable or fully
recyclable offering. Cirql is at an early stage of commercial development,
with over $30m invested to date by the previous owners, and the technology is
secured by over 80 patents. Under Coats' ownership, the commercialisation plan
will be further developed, and updates will be provided in due course. Ongoing
operating costs for the team are expected to be c.$1.5m per quarter, achieving
a break-even position in 2026. As part of the transaction terms, the estimated
costs to deliver the business to profitability were deducted from the
consideration paid to the seller.

Compelling Strategic Fit

The Acquisition accelerates Coats Footwear division's strategy to create a
'super tier 2' supplier in footwear components, strengthening its product
offering to brands through the entry into the attractive fast growing
open-cell premium insole segment of the market.

Based on results to 31 December 2024, the enlarged Coats Footwear division has
pro-forma revenues of c.$700m.

The acquisition of a high-quality business improves the overall quality of
Group earnings, shifting the balance towards its high growth, high margin
footwear segment.

OrthoLite has strong similarities with Coats due to its customer base,
route-to-market, focus on quality, innovation and sustainability, and global
operational footprint. The combination provides exciting potential commercial
opportunities to deepen customer relationships and accelerate growth,
leveraging the combined strengths of the businesses in technology and access
to customers.

Significant Value Creation

Initial joint annualised cost synergies of $20m have been identified and are
expected to be delivered by 2028, for a c.$35m one-off cost, from savings in
joint footprint optimisation, operational excellence, strategic procurement
and support functions. Additional joint growth synergies have been identified
through cross-sell opportunities, the upside potential from Cirql and the
acceleration of innovation.

Coats has a successful track record of delivering synergies from the footwear
acquisitions of Texon and Rhenoflex in 2022, and is confident in leveraging
this recent experience.

Attractive Financial Effects

OrthoLite is a high-quality business, with a strong track-record of growth (8%
revenue CAGR 2019-24), market-leading position and strong profitability (26%
EBIT margin in 2024). The acquisition is accretive to Group EBIT margins
(c.200bps margin enhancement from 2028 onwards post synergies) and EPS
accretive to Coats from the first full year. ROIC is expected to exceed WACC
by 2028. OrthoLite has an attractive operating cash conversion of 90%+ over
the last three years, which will support and accelerate the Group's free cash
flow growth over the medium term.

Alongside the Acquisition's attractive returns, the transaction also
accelerates the delivery of the Coats' existing medium term targets. Once
Coats has completed the acquisition of OrthoLite, the Company will review its
medium-term targets to ensure they fairly reflect the ambitions for the Group.

Transaction Structure

Under the terms of the transaction, Coats has agreed to pay an initial
Enterprise Value of $770m. This represents a multiple of 10.0x EV / EBITDA 2 
(#_ftn2) , reducing to less than 8.0x on a post-synergy basis, which includes
$20m of initial annualised cost synergies to be delivered by 2028. A further
contingent earn-out payment of up to $10m is payable based on FY25 EBITDA
performance between $80m to $84m. Coats has also agreed to pay the current
owners of OrthoLite a royalty of 5% on future sales of products using the
newly developed Cirql technology over the next 5 years.

The acquisition will be funded through a combination of new debt facilities
with Coats' existing lenders and proceeds of an equity placing of up to 19.99%
of issued share capital, announced separately and launched immediately. It is
expected that following the placing, pro-forma net leverage will be 2.2x by 31
December 2025, falling to below 2.0x by the end of 2026.

The transaction is subject to customary regulatory clearances and is expected
to close in Q4 2025.

 

Enquiries

 Coats Group plc (Investors)           Tel: +44 (0) 797 497 4690

 Chris Dyett

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

 Richard Shaw

 James Cliffe

 Anmol Bains
 BNP Paribas (Joint Corporate Broker)  Tel: +44 (0) 20 7595 9444

 Virginia Khoo

 Carwyn Evans

 Selim Tuna

 Peel Hunt (Joint Corporate Broker)    Tel: +44 (0) 20 7418 8900

 Mike Bell

 Dom Convey

 Sohail Akbar

 FTI Consulting (Communications)       Tel: +44 (0) 20 3727 1340

 Nick Hasell

 Victoria Hayns

 

Further Information

Board's views on the Acquisition

Considering all the information that is outlined above, the Board of Directors
of Coats believes that the Acquisition is in the best interests of Coats'
shareholders as a whole and is expected to be immediately accretive to Group
margins and earnings per share.

UK Listing Rules

The Acquisition, because of its size in relation to Coats, constitutes a
Significant Transaction for the purposes of the UK Listing Rules made by the
Financial Conduct Authority (the "FCA") for the purposes of Part VI of the
Financial Services and Markets Act 2000 (as amended), which came into effect
on 29 July 2024 (the "UKLRs"), and is therefore notifiable in accordance with
UKLR 7.3.1R and 7.3.2R. In accordance with the UKLRs, the Acquisition is not
subject to shareholder approval. A further announcement will be made in due
course in compliance with UKLR 7.3.2R.

Financial Information

The following table contains key historical financial information of OrthoLite
for 12-month reporting periods ending 31 December 2020 to 31 December 2024,
which has been extracted from management accounts:

 Year Ending 31-December   2020  2021   2022   2023     2024
 Revenue ($m)              176   241    278    217      258
 Revenue Growth %          n.a.  36.9%  15.2%  (21.7%)  18.4%
 Adjusted EBITDA Margin %  26%   20%    24%    26%      28%

Synergies

The estimated joint synergies summarised above under the heading "Significant
Value Creation" reflect both the beneficial elements and relevant costs. These
estimated synergies are contingent on the Acquisition completing and could not
be achieved independently. The directors' belief that these synergies will be
able to be achieved is underpinned by an extensive modelling exercise that was
undertaken by management in collaboration with the Company's advisers, also
being informed by the Company's successful track record of delivering
synergies from the footwear acquisitions of Texon and Rhenoflex in 2022.

 

Risks of the Acquisition

The Group may fail to realise, or it may take longer than expected to realise,
the full expected benefits of the Acquisition

The Group may not realise the full anticipated benefits that the Company
expects will arise as a result of the Acquisition, or may encounter
difficulties, higher costs or delays in achieving those anticipated benefits.
Any failure to realise the anticipated benefits that the Company expects to
arise as a result of the Acquisition, or any delay in achieving such
anticipated benefits, could have a material and adverse impact on the Group.
Accordingly, Coats has spent extensive time together with its advisers
preparing its integration plan and is able to leverage experiences of
successfully integrating footwear acquisitions.

The target business may be adversely affected by general macroeconomic,
political and financial market conditions

OrthoLite's customers are leading global footwear brands. Any potential
adverse change in the macroeconomic climate, or a significant deterioration of
the global trade environment, may result in the business facing a decrease in
customer demand and impact performance of OrthoLite. Coats has undertaken
significant due diligence on the business, its customers and end-markets and
has reflected this in the transaction terms.

Coats may not be able to retain key employees of OrthoLite following the
transaction

The management team of OrthoLite are important to its future commercial
success and financial performance and are expected to remain in the business.
Following the transaction, key members of the OrthoLite team may decide not to
continue in their roles as part of Coats, which could have a material and
adverse impact on the financial performance of the business. Coats intends to
put in place an employee retention scheme for key members of management to
mitigate this risk.

Completion of the Acquisition is subject to the satisfaction of certain
regulatory conditions, and if the Acquisition does not complete because any of
the conditions are not satisfied, the Company will not realize the perceived
benefits of the Acquisition.

Completion of the Acquisition is subject only to the satisfaction of various
customary closing conditions including expiration of the waiting period under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976. There is no
guarantee that these conditions will be satisfied. Failure to satisfy any of
these conditions may result in the Acquisition not completing. If the
Acquisition does not complete, the Group will not benefit from the expected
benefits of the Acquisition. As a result, there is a risk that the Company may
incur significant expenditure in connection with, or to satisfy, such
condition which will be in addition to the actual costs of the Acquisition and
the integration process. There can be no assurance that the conditions to the
closing of the Acquisition will be satisfied, waived or fulfilled in a timely
fashion or that the Acquisition will be completed.

IMPORTANT INFORMATION

This announcement contains inside information for the purposes of the Market
Abuse Regulation (Regulation (EU) No596/2014) 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 Group by
Hannah Nichols, Chief Financial Officer at 4:35pm BST on 16 July 2025.

This announcement is not intended to, and does not constitute, or form part
of, any offer to sell or issue or any solicitation of an offer to purchase,
subscribe for, or otherwise acquire, any securities or a solicitation of any
vote or approval in any jurisdiction.

Lazard & Co., Limited ("Lazard") is authorised and regulated in the United
Kingdom by the Financial Conduct Authority ("FCA").  BNP PARIBAS is
authorised and regulated by the European Central Bank and the French Autorité
de contrôle prudentiel et de résolution. BNP PARIBAS is authorised by the
Prudential Regulation Authority (the "PRA") and is subject to regulation by
the FCA and limited regulation by the Prudential Regulation Authority (the
"PRA"). BNP PARIBAS London Branch ("BNPP") is authorised by the PRA and
regulated in the United Kingdom by the FCA. Peel Hunt is authorised and
regulated in the United Kingdom by the FCA. Each of Lazard, BNPP and Peel Hunt
is acting exclusively for 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 their
respective clients nor for providing advice in relation to the contents of
this announcement or any other matter or arrangement referred to herein.
Neither Lazard, BNPP and Peel Hunt, nor any of their respective 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 in connection with this announcement, any
matter, arrangement or statement contained or referred to herein or otherwise

This announcement is being issued by and is the sole responsibility of the
Company. No representation or warranty, express or implied, is or will be made
as to, or in relation to, and no responsibility or liability is or will be
accepted by Lazard, BNPP or Peel Hunt (apart from the responsibilities or
liabilities that may be imposed by the FSMA or the regulatory regime
established thereunder) or by any of its respective affiliates or by any of
their respective directors, officers, employees, advisers, representatives or
shareholders (collectively, "Representatives") for the contents of this
announcement or any other written or oral information made available to or
publicly available to any interested party or its advisers or any other
statement made or purported to be made by or on behalf of Lazard, BNP PARIBAS
or Peel Hunt or any of their respective affiliates or by any of their
respective Representatives in connection with the Company, the Acquisition or
the Placing, and any responsibility and liability whether arising in tort,
contract or otherwise therefore is expressly disclaimed.

The securities of the Company have not been and will not be registered under
the U.S. Securities Act of 1933, as amended (the "Securities Act") or with any
securities regulatory authority of any state or other jurisdiction of the
United States and may not be offered, sold, delivered or transferred, directly
or indirectly, in or into the United States except pursuant to an exemption
from, or in a transaction not subject to, the registration requirements of the
Securities Act and in compliance with any applicable securities laws of any
state or other jurisdiction of the United States. There has not been or will
not be any public offering of securities in the Company in the United States,

This announcement may contain "forward-looking statements" with respect to
certain of the Company's plans and its current goals and expectations relating
to its future financial condition, performance, strategic initiatives,
objectives and results. Forward-looking statements sometimes use words such as
"aim", "anticipate", "target", "expect", "estimate", "intend", "plan", "goal",
"believe", "seek", "may", "could", "outlook" or other words of similar
meaning. By their nature, all forward-looking statements involve risk and
uncertainty because they are based on numerous assumptions regarding the
Company's present and future business strategies, relate to future events and
depend on circumstances which are or may be beyond the control of the Company
and OrthoLite which could cause actual results of trends to differ materially
from those made in or suggested by the forward-looking statements in this
announcement, including, but not limited to, domestic and global economic
business conditions; market-related risks such as fluctuations in interest
rates; the policies and actions of governmental and regulatory authorities;
the effect of competition, inflation and deflation; the effect of legislative,
fiscal, tax and regulatory developments in the jurisdictions in which the
Company and OrthoLite and their respective affiliates operate; the effect of
volatility in the equity, capital and credit markets on profitability and
ability to access capital and credit; a decline in credit ratings of the
Company and/or OrthoLite; the effect of operational and integration risks; an
unexpected decline in sales for the Company and/or OrthoLite; inability to
realise anticipated synergies; any limitations of internal financial reporting
controls; and the loss of key personnel. Any forward-looking statements made
in this announcement by or on behalf of the Company speak only as of the date
they are made. Save as required by the Market Abuse Regulation, the Disclosure
Guidance and Transparency Rules, the UK Listing Rules or by law, the Company
undertakes no obligation to update these forward-looking statements and will
not publicly release any revisions it may make to these forward-looking
statements that may occur due to any change in its expectations or to reflect
events or circumstances after the date of this announcement.

No statement in this announcement is intended as a profit forecast or a profit
estimate for any period and no statement in this announcement should be
interpreted to mean that earnings, earnings per share of for the Company for
current or future financial years would necessarily match or exceed the
historical published earnings, earnings per share of the Company.

Certain figures included in this announcement have been subjected to rounding
adjustments.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Appendix

 

"Acquisition" has the meaning given in paragraph 1 of this announcement;

"BNPP" means BNP PARIBAS;

"CAGR" means compound annual growth rate;

"Coats" or the "Company" means Coats Group plc;

"Disclosure Guidance and Transparency Rules" means the Disclosure Guidance
& Transparency Rules as made by the Financial Conduct Authority;

"EBITDA" means earnings before interest, tax, depreciation and amortisation;

"EPS" means earnings per share;

"FCA" means the UK's Financial Conduct Authority;

"FSMA" means the Financial Services and Markets Act 2000 (as amended);

"Group" means the Company and its subsidiary undertakings from time to time
and each of them as the context admits;

"Interim Results" means Coats Group plc's unaudited consolidated results for
the six months ended 30 June 2025;

"Lazard" means Lazard & Co., Limited;

"Market Abuse Regulation" means the UK version of the Market Abuse Regulation
(EU) No.596/2014, which forms part of UK law by virtue of the European Union
(Withdrawal) Act 2018);

"OrthoLite" means OrthoLite Holdings LLC ;

"Peel Hunt" means Peel Hunt LLP;

"Placing" has the meaning given in paragraph 2 of this announcement;

"ROIC" means return on invested capital;

"Securities Act" means the U.S. Securities Act of 1933, as amended;

"UK Listing Rules" means the rules and regulations for listed companies in the
UK as made by the FCA;

"United Kingdom or UK" means the United Kingdom of Great Britain and Northern
Ireland; and

"United States or US" means the United States of America, its territories and
possessions, any state of the United States of America, the District of
Columbia and all other areas subject to its jurisdiction and any political
sub‑division thereof; and

"WACC" means weighted average cost of capital.

 1  (#_ftnref1) EBITDA is LTM adjusted.

 2  (#_ftnref2) EBITDA is LTM adjusted.

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