Ramping deal activity and capacity

Canadian & U.S. morning comments

June 13, 2017

ITP announced an agreement to acquire substantially all of the assets of Canadian Technical Tape Ltd. (Cantech) for a purchase price of $63 million. While we estimate an initial transaction multiple of ~9x EV/EBITDA (on an LTM basis), we believe a combination of potential capital investments and integration efforts should result in a post-synergy transaction multiple below 7.0x EV/EBITDA; we estimate the transaction will be 6% accretive to EBITDA and 5% accretive to EPS on our 2018 estimates.

The deal is expected to close in Q3 – at which point we also expect the raw material headwind to largely subside and revenue growth to ramp materially. We see continued upside to the name as ITP attractively combines strengthening margins, accelerating (organic and strategic) growth, and an unwarranted (near-record) discount valuation. Meanwhile, ITP remains catalyst-rich, with debt capacity for strategic and organic growth opportunities expanding following the close of the transaction and concurrent increase to ITP’s borrowing facility. We increased our target price to $29/share.

Read more…