IWP International has agreed to sell its household products division to its British management, backed by private equity firm Legal & General Ventures (LGV), for €134.2 million.
The deal, designed to allow IWP to focus on its personal care business and pay down debt, will see it reinvest €33.2 million of the proceeds in the company set up to buy the division.
IWP will hold a 35 per cent stake in the company, mainly through a bond investment with a 12 per cent coupon, LGV will own 44 per cent while management will hold the balance.
"Our continued confidence in the future prospects of this division is reflected by our ongoing investment," according to IWP chief executive Mr Joe Moran.
The business, which recorded operating profits of €15.9 million on sales of €295.9 million in the year ended March, includes a number of well-known brands such as Jeyes, Bloo and Parazone.
However, IWP has decided to sell the business to allow it to concentrate on its personal care division where, at around 10 per cent, margins are twice those in the household products area.
"We believe that, while our household business is a well-managed, consistent performer which, over the long term, will deliver good value, our personal care division has greater potential to deliver higher growth levels and its inherently higher margins and lower capital expenditure requirements make it attractive from an investment perspective," IWP said.
The proceeds from the sale of the household products group, will be used to pay down debt, which IWP believes has contributed to the low rating on which its shares currently trade.
By year-end, IWP expects its debt to stand at €74 million compared to €175 million at present.
Although the sale will dilute earnings by an estimated 7 to 10 cents in a full year, the company will receive a net €4 million a year in interest from its bond investment.
IWP shares jumped 10 cents on the news to close at €1.70, a gain of 6 per cent on the day.
Based on historical profits, the sale price represents a multiple of 8.4 times, which is in line with the multiple paid in the management buyout of British personal care company Peter Black, Goodbody Stockbrokers said.
"However, when it is considered that IWP's household products division earns an operating margin of around 5.4 per cent versus around 12 per cent for Peter Black, the deal represents good value for IWP," according to Goodbody.
The deal is subject to shareholder and regulatory approval.
Meanwhile, the group reported a 3 per cent drop to €24.1 million in pre-tax profits in the year ended March.
"Our good performance in the first half unfortunately did not continue into the second half," IWP said.
Among the factors it cited was the slowdown in the US from September 2001 onwards.
Its Dutch personal care and plastic businesses also performed below expectations, it said.
The company is proposing a final dividend of 4.8 cents, bringing the total payout for the year to 9 cents, down 0.5 per cent on last year.
The company also announced the appointment of Mr Bernard Byrne as deputy chief executive with responsibility for day-to-day operations, allowing Mr Moran to focus on strategy and the future direction of the company.
