Keywords: Unipapel, Spicers, D S Smith, Lyreco, Alverez-Miranda, wholesale

Unipapel and Spicers

Spicing things up 

The major story from Europe in 2011 was undoubtedly the July announcement by Spanish manufacturer and distributor Unipapel that it was to acquire leading wholesaler Spicers from UK packaging group DS Smith.

DS Smith had said in December 2010 that Spicers was not a core business as it focused on becoming a leading player in the European recycled packaging market.

At the same time, Unipapel was in the process of selling off its stake in the Ofiservice B2B operations in Spain to Lyreco for around 169 million. That deal netted Unipapel a capital gain of about 154 million, meaning the company would face a hefty tax bill unless the proceeds were re-invested in acquisitions within a three-year period.

In March (2011), Unipapel CEO Millán Álvarez-Miranda commented that he viewed Unipapel as a consolidator in the European office products wholesaling channel, raising speculation that the company had its eye on the Spicers business (see ‘Unipapel look to spend Lyreco cash’).

The only sticking point from the Unipapel perspective was Spicers’ UK & Ireland operations which did not fall into its continental European development strategy.

Enter former office2office CEO Ray Peck who himself had been interested in putting a deal together to acquire the whole of the Spicers business. When this proved unfeasible, he was drawn to Unipapel and wheels were set in motion to spin off the UK & Ireland.

OPI understands that finding the financial backing for the UK & Ireland spin-off was a bit of a bumpy ride with the final acquirer – private equity firm Better Capital – not coming to the table until the eleventh hour after due diligence had already been completed.

Peck will take a non-executive role on the new Spicers UK & Ireland board and the business will be headed by current Managing Director Alan Ball.

The final agreement saw Unipapel acquire the entire Spicers business for a total of £200 million (1,238 million), some £50 million more than analysts had been suggesting when Spicers was put up for sale.

However, the Spanish firm immediately recouped £32 million of that following the UK & Ireland spin-off to Better Capital, leaving it with an acquisition price of £168 million, approximately 1,200 million at current exchange rates. Unipapel is funding the deal through a combination of its own cash reserves and a 1,145 million syndicated loan involving a number of banks.

It was suggested in July that the acquisition could have been completed as early as the end of September with European works council issues being quickly negotiated, but European Union competition authorities also had to approve the acquisition, pushing the final date into December.

In fact, there was a slight hiccup at the end of November when the EU Commission extended the provisional deadline for their approval from 6 to 20 December.

This deadline extension came after Unipapel submitted commitments (EU speak for ‘concessions’, it seems) to the Commission. No further details of what these commitments may have been were given at the time, but a Unipapel spokesperson told OPI that this procedure was “absolutely normal” in these types of important deals.

New EU giant

The addition of Spicers’ continental operations – France, Benelux, Germany, Italy and Spain – will bring Unipapel’s annual sales to around 11.3 billion, cementing its position as the leading office and IT supplies wholesaler in Europe. About two-thirds of those sales will come from IT hardware and accessories (following the acquisition of Adimpo in 2009) and the remaining third from traditional office supplies.

Álvarez-Miranda said that there would now be “a much better balance” to the group’s products portfolio and a better geographical spread too, with over 60% of sales outside its domestic Spanish market.

France will become a key market for Unipapel. Álvarez-Miranda said that Adimpo has been growing at a healthy clip in France (its 2010 sales were 1,180 million) and that adding the French Spicers business – which he described as the “jewel in the crown” of Spicers’ European operations – would make a very powerful combination.

The Unipapel CEO committed to maintaining the recent strategy of expanding the Spicers Calipage brand, which is currently being rolled out in Germany.

The only market where this may be affected is Spain, where the company already operates a similar franchise arrangement with its Unipapel and UniStar brands. Therefore it may make sense to bring these businesses – Calipage has around 180 dealers in Spain – into the same fold.

Álvarez-Miranda stressed that Unipapel is interested in Spicers as a package. This includes current management and staff and its distribution infrastructure.

“The story is one of growth,” he told OPI. “We’ve gone from 1,200 million in 2008 to possibly 11.3 billion in 2012, and at the end of the day everything is about people.”

The Unipapel CEO added that he did not envisage the need to undertake an integration of the business.

“Our plan would be to run Spicers as an independent business,” he noted. “We have learned in Spain from running Adimpo and Unipapel in parallel that there are a lot of synergies that can be driven without having to integrate two businesses into one.”

Adimpo acquisition bearing fruit

The acquisition of Spicers is Unipapel’s second major acquisition in the space of two years. In 2009 it paid 135 million for struggling EOS distributor Adimpo. Since then Unipapel has performed something of a turnaround at the distributor as highlighted by its most recent quarterly results report in November.

Top-line sales from the Adimpo subsidiary were over 1,550 million and increased by 6.5% in the three-month period to the end of October.

Adimpo reported double-digit sales growth in Portugal (28.6%), Italy (24%) and France (19%) while sales in Germany were up 9.7%.

57% of Adimpo’s sales now come from outside the domestic Spanish market, and Unipapel said that it continues to win market share, notably in Germany, France and Italy.

Question marks

There are, of course, a number of remaining unanswered questions concerning several aspects of the acquisition.

These include the raison d’être of the European purchasing and marketing team and the role of Group CEO Peter Damman who was brought in last year to drive through improvements in the Spicers business. 

Sourcing products for its own 5-Star private brand could also be an issue; Unipapel is known to want to use Spicers as an outlet for its own Spanish production facilities which include products such as envelopes and notebooks. It will be interesting to see to what extent the UK & Ireland and continental Europe businesses maintain links going forward.

Triple win

Nevertheless, it was certainly a transaction that suited the three parties involved.

DS Smith managed to offload a non-core business that will allow it to focus on its main recycled packaging business, perhaps for a higher price than it had previously expected.

Unipapel certainly doesn’t believe that it has paid over the odds. The price it paid for the continental operations represents an EBITDA multiple of just 5.4, while it sold the UK and Ireland business for an EBITDA multiple of 17. Clearly, it will be able to achieve synergies in its key markets.

For Better Capital, it has picked up a £350 million business for just over £30 million. On paper, its assets are probably worth more than that and, on the operational side, Alan Ball and his team have done a good job over the last year to improve profitability. 

New European Power

Spicers’ continental European business adds over 1,440 million to Unipapel’s top line. Its Calipage and Plein Ciel branded retail outlets are number one and two in France with approximately 260 and 160 dealers respectively. Calipage has also been successfully rolled out in Belgium (30 dealers), Spain (180) and is being rolled out in Germany.