ASX-listed Close the Loop Group has acquired thermal paper supplier and sustainable paper products group Alliance Paper, paying $1 together with an investment in working capital of approximately $4.5 million for the company.
Alliance Paper is the largest and longest-serving supplier and converter of paper roll products in the Australian market, and offers a range of BPA and phenol-free thermal receipt rolls, as well as other recyclable paper products. Alliance has also developed sustainable paper products such as recyclable coffee cups, and disposable and recyclable eskys.
The company's customer base includes leading Australian supermarkets, as well as several leading brands including KFC, McDonalds, Nike and Bank of Queensland.
Shortly after the acquisition was announced on the ASX, PKN spoke to Close the Loop Group CEO Joe Foster who said the purchase of Alliance strengthens the group's position in the sustainable paper product sector, and will allow it to develop new sustainable paper products that can replace some traditional plastic packaging, based on technologies that Alliance has developed.
"As with our other recent purchases, it provides us with a highly complementary market space and product suite to our existing packaging offering," Foster said.
Foster, who was in the US at the time of the interview, told PKN the opportunities this acquisition opens up for the group, both in Australia and the US market, are "huge and exciting" – for packaging and circular recycling.
"We see the advanced paper technologies which Alliance has brought to market as offering huge promise for developing pouches and flow wrap packaging in paper – in fact these have already been trialled successfully by our division, OF Flexo, Foster said."
"And today's machinery – VFFS, HFFS – is designed to form and fill paper-based pouches and flow wraps at high speed, to meet the rising tide of demand for paper packaging that we are seeing on the market."
Jon Williams, managing director of Alliance Paper who will stay on to lead the business, told PKN the sale comes at a good time for Alliance, which has weathered several challenging years with Covid driving a drop in demand for some key portfolio products, combined with the enormous hike in shipping costs for papers from Europe.
"Alliance Paper was a pioneer in chemical-free and safer consumer products in the paper and packaging space, most recently advancing the commercial strategy and adoption of BPA-free thermal paper across the Australian market," Williams said. It is this technology that Close the Loop will leverage as it grows its paper-based offerings.
Foster said the deal will enhance Close the Loop’s revenue and profitability levels in FY23, with revenues at Alliance expected to almost double to $19.7 million in FY23, up from from $11.7 million in FY22. EBITDA is anticipated to be back in the black to the tune of $2.4 million in FY23, from a loss in FY22.
Revenue growth is being driven by new supply contracts and investment in inventory to meet the increased demand for Alliance products.
“Alliance offers strong sales growth and profitability levels, significant cost synergies, and a diverse suite of well-established and loyal clients. The acquisition delivers on our strategy of growth via acquisition, and further expansion within the niche packaging sector," Foster said.
“The combination of Alliance’s expertise in paper products, and our leadership in the global circular economy for packaging, will increase our capability to reduce the amount of waste that ends up in landfill, and is instead recycled into new products.”
Williams for his part was enthusiastic about the synergies across the businesses, and the alignment of values: “For us, true circular integration requires a broad and complete approach, and to be part of Close the Loop’s industry-leading solution is an opportunity to deliver real change.
“The capacity to develop and deliver chemical-free paper packaging solutions, manufactured with the same organisation that can manage the waste stream for the same post-consumer use items, is a rewarding and exciting next step for our organisation.”
The acquisition at a glance:
- Assets purchased: 100 per cent of Alliance Paper
- Purchase price: $1 payable at settlement on 31 August 2022
- Working capital: $4.5 million investment in working capital to be made at
settlement date and beyond - Funding: cash and bank debt
- Net assets of $4.88 million at 30 June 2022
- Management remains after the acquisition
