Sausage skin maker Devro has moved to strengthen its presence in Europe by agreeing a deal to buy a Dutch rival for up to €13.5 million (£9.7m).
The Moodiesburn-based firm said PV Industries (PVI), a maker of collagen gel products for the meat processing industry, offers it access to “a strong technical skills base together with an innovative and developing product portfolio”.
The purchase is seen as fitting like a glove and positioning Devro wellNumis analyst Charles Pick
City analysts said the deal – a rare acquisition for Devro – was seen as “fitting like a glove” as the firm has found it hard to break into the European market for collagen gels, which are used to coat sausages and offer a cheaper alternative to making hot dogs than cellulose.
Devro, led by chief executive Peter Page, employs about 2,200 people around the world. Last year the firm announced it would shed 130 out of 520 jobs in Bellshill and Moodiesburn as part of a plan to save £5m a year as it ramps up production overseas. It is spending £50m on a plant in China and investing £40m to expand its US manufacturing presence.
Costs linked to the shake-up in production on home turf and the overseas expansion saw the company’s pre-tax profits tumble to £2.2m last year, down from £37.5m in 2013. However, a recent trading update highlighted that sales volumes have shown year-on-year growth for four quarters running, helped by strong performances across China, Germany, Japan and the US.
“Currency continues to be a headwind against prior year, but the board remains confident in the outlook for 2015,” the firm told investors at the time of its annual meeting in April.
Devro, which generates 11 per cent of its sales in the UK and Ireland, with a further 35 per cent coming from the rest of Europe, is paying about €12.5m for PVI, with a possible additional payment of up to €1m under an earn-out arrangement.
The Dutch company made an underlying profit of €1.3m on sales of €6.3m last year. Completion of the purchase depends on clearance by authorities in “certain EU jurisdictions”, with analysts predicting the deal will be finalised within six weeks.
Devro finance director Simon Webb said: “This acquisition supports Devro’s strategy by growing sales of collagen products through product differentiation and enhancing value for customers.”
Webb, the former chief financial officer of banknote printer De La Rue, added: “It will strengthen our presence in Europe, extending our product knowledge and technical expertise in a specialist sector.”
Numis analyst Charles Pick said it was “unusual” to see Devro heading down the acquisition route but described the deal as “strategically a favourable purchase” given the price and the fact that all of the firm’s current collagen gel sales are in the US.
He added: “Devro has an existing and far larger collagen gel business in the US – where the market is also far larger – that is performing well and has no current sales in Europe where it has been found hard to break in. The beauty of this deal is that it adds an existing customer list.
“Overall, the purchase is seen as fitting like a glove and positioning Devro well if collagen gel develops strongly in Europe, and at a later stage too in Asia.”
Numis, which has a “hold” rating on the company’s shares and a target price of 308p, has pencilled in a pre-tax profit of £30.5m for 2015.
Shares in Devro, which floated on the London Stock Exchange in June 1993, ended the session 1p higher at 310.25p.