Consumer packaging company Crown Holdings, Inc. (CCK - Free Report) has agreed to acquire Signode Industrial Group Holdings (Bermuda) Ltd. — a unit of The Carlyle Group L.P. (CG - Free Report) — for $3.91 billion. This acquisition will strengthen Crown Holdings’ metal packaging business and significantly boost its free cash flow as well.
Based in Glenview, IL, Signode operates in 40 countries with sales to customers in approximately 60 countries. This $2.4-billion company has 88 manufacturing facilities across six continents. Signode generated pro forma sales and adjusted EBITDA of $2.3 billion and $384 million, respectively, for the twelve-months ended Nov, 30.
The company boasts a diversified product offering offerings including strap, stretch and protective packaging consumables. Signode’s products secure and protect industrial and consumer goods during warehousing and shipment.
Benefits for Crown Holdings
The Signode acquisition will add a portfolio of premier transit and protective packaging franchises to Crown Holdings’ metal packaging business. Post buyout, Crown Holdings will be able to supply full solutions to meet customers' transit packaging needs utilizing Signode's products. In addition, Signode's geographic and product mix will provide Crown Holdings a solid platform for value-creating growth. Moreover, the buyout will broaden and diversify Crown Holdings’ customer base, facilitating growth in cash flow.
The acquisition, which is subject to review by various competition authorities, is expected to close in the first quarter of 2018. Debt financing has been fully committed in support of the transaction.
Acquisitions Drive Crown Holdings’ Growth
The aforementioned acquisition is in sync with Crown Holdings’ strategy to evaluate select growth opportunities through capacity additions in its existing plants and new plants in existing markets. However, the Signode acquisition comes after nearly three years of the EMPAQUE buyout. The addition of EMPAQUE — a leading manufacturer for the beverage industry in Mexico — has significantly fortified Crown Holdings’ presence in the Mexican market, along with substantially boosting its strategic position in the beverage cans segment, both regionally and globally.
Thus, Crown Holdings is aimed at making potential acquisitions in geographic areas and product lines in which it already operates or that complement its existing businesses. Furthermore, acquisitions are anticipated to fuel the company’s growth.
Share Price Performance
Year to date, Crown Holdings has outperformed the industry with respect to price performance. While the stock has rallied 7.5%, the industry has recorded growth of 6.8% during the same time frame.
Zacks Rank & Stocks to Consider
Currently, Crown Holdings carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same industry are Caterpillar Inc. (CAT - Free Report) and Deere & Company (DE - Free Report) .
Caterpillar has a long-term expected earnings growth rate of 10.3%. Its shares have rallied 62.7% year to date. The company flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Deere, another Zacks Rank #1 stock, has a long-term expected earnings growth rate of 8.2%. The stock has appreciated 49.9% during the same time frame.
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