Kodak sells flexo business to private equity firm

Rhys Handley
Tuesday, November 13, 2018

Kodak has agreed to sell its flexo business to Montagu Private Equity in a deal expected to be worth up to $390m (£301m).

Kodak put the £116.5m-turnover Flexographic Packaging Division up for sale in August and confirmed it was in exclusive negotiations over the sale in its Q3 results last week. Montagu was officially named as the buyer late yesterday (12 November).

Montagu specialises in supporting incumbent chief executives and said it will maintain the division's organisational structure and management team, including president Chris Payne who will step up to chief executive. The sale of the division is expected to be completed in the first half of next year, subject to regulatory approvals.

“This transaction is an important turning point in our transformation and is a significant, positive development for Kodak,” said Kodak chief executive Jeff Clarke.

“The sale of the flexographic packaging division unlocks value for shareholders and strengthens our financial position by providing a meaningful infusion of cash, which allows us to reduce debt, improving the capital structure of the company and enables greater flexibility to invest in our growth engines.

“The company is well positioned for the future by leveraging growth engines and continuing to maximise value in print systems, film and advanced materials. Customers will continue to experience the same products, same people and the same trusted brand.”

Set to operate as a new standalone company, the flexo wing is responsible for the development, manufacture and sale of flexo machinery and products – including its flagship Kodak Flexcel NX system.

Q3 results showed that rising sales of Flexcel NX plates contributed to a $4m increase in sales to $36m at the up-for-sale flexo division, where EBITDA rose by $3m to $8m. NX plate volumes were up 17% during the quarter. The new Flexcel NX Ultra product was announced last month.

Around 300 members of staff work specifically for the flexo wing, and all are expected to transfer in the acquisition. The division spans premises in the US, Belgium and Japan. It is expected that at any bases shared with the main Kodak company, flexo team members will relocate to new premises in the area.

The Kodak branding will continue to be used by the business even as it splits from its parent.

Montagu, which has offices in London and across Europe, has an investment portfolio that spans a range of sectors. It has previously invested in packaging manufacturer Linpac and waste management firm Biffa. Its current investments include healthcare technology developer Servelec Group and Nordic business management firm Visma.

From a base purchase price of $340m, Kodak expects to generate additional earn-out payments of up to $35m through to 2020 depending on the performance of the flexo business, and an additional $15m as a pre-payment for services provided to the business by Kodak after the sale is completed.

Following this transaction, Kodak said it would continue to focus on the growth areas of Sonora plates, enterprise inkjet, workflow software and brand licensing, aiming to maximise value in commercial printing, film and advanced materials.

In the three months to 30 September, overall sales at the manufacturer slipped by 2% on a constant currency basis to $371m. Adjusted operational EBITDA doubled from $11m to $22m on the back of cost-cutting efforts, operational improvements, and strengthening of Kodak’s product portfolio, according to Clarke.

Following the announcement, Kodak’s shares peaked at $3.84, their highest point since the summer.

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