Research Dynamics - Report on CPHN: Event Update

CPH’s Perlen Packaging to acquire LOG Pharma

Deal Overview

On December 4, 2024, CPH Group (CPH) announced that its Packaging Division - Perlen Packaging is set to acquire the LOG Pharma company, which has production sites in Israel and Hungary. The purchase price remains undisclosed, but the transaction is expected to be completed in 1QFY25.

LOG Pharma produces packaging solutions with high barrier properties against oxygen and water vapour, ensuring the safe and secure packaging of both solid and liquid pharmaceutical and medicinal products. The company is pursuing a growth strategy and reported revenues of CHF 26 million and an EBITDA of CHF 2.7 million for FY23.

The management noted that it is cognisant of the current tense political situation in Israel and has therefore thoroughly assessed the opportunities and risks associated with this acquisition. After careful deliberation, the Board of Directors decided to proceed with the transaction as planned, concluding that the potential for further development of Perlen Packaging in alignment with its strategy outweighs the existing risks.

Previously, in June 2024, CPH Group AG had completed a strategic spin-off in which the more volatile Perlen Paper business was separated from its Chemistry and Packaging divisions. This resulted in the creation of Perlen Industrieholding AG, which focuses on the Paper business and real estate in Perlen, Switzerland. The aim of the spin-off was to refocus the business by creating two independent companies with distinct strategic orientations. Following this restructuring, Perlen Packaging’s plan to expand through the acquisition of LOG Pharma is in line with its strategic objectives and will strengthen its global market position in pharmaceutical packaging.

Deal Rationale

Perlen Packaging operates in several key segments within the pharmaceutical packaging industry, including high-barrier films, mono films, coated films, and blister packs and has a global presence with production facilities in Europe, the USA, China, and Brazil.

LOG Pharma produces packaging solutions with high barrier properties against oxygen and water vapour, ensuring the safe and secure packaging of both solid and liquid pharmaceutical and medicinal products. By acquiring LOG Pharma and establishing a presence in Israel and Hungary, the CPH Group aims to strengthen its global market position in growth regions for pharmaceutical packaging. According to management, this acquisition would add complementary primary pharmaceutical packaging solutions, such as bottles and containers, to the Perlen Packaging product range. It will also help CPH to gain a foothold in the lucrative Eastern European pharmaceutical packaging market.

The CPH Group focuses on attractive niche markets with above-average growth potential worldwide. The acquisition of LOG Pharma is a strategic step in further advancing the expansion of its Packaging Division and integrating it with the former’s existing packaging business will allow market synergies to be exploited and overall capabilities to be enhanced. With the production site in Hungary, CPH is also gaining market access to Eastern Europe, a region that is becoming increasingly important for its customers in the production of pharma blister packaging. The manufacturing location will enable CPH to respond more quickly and effectively to its customers’ needs, while the new product offering will strengthen CPH’s market proposition.

Valuation and conclusion

The Packaging and Chemistry divisions offer a favourable long-term outlook and the operating results of these divisions are expected to remain resilient. Apart from a supportive outlook, the cost optimisation efforts are expected to result in margin improvement to the 16-18% range going forward, which should lead to solid earnings growth.

We value CPH using DCF and relative valuation techniques. Our intrinsic value of CHF 86.1 per share implies an upside of 27.8% from current levels. For relative valuation, since the Group operates in two entirely different divisions, we compare CPH’s divisions with various sets of relevant industry peers. We have employed three parameters – EV/EBITDA, P/S, and P/E – to analyse the relative valuation of the Group. CPH currently trades at an EV/EBITDA multiple of 4.2x (FY2025e), a 44.0% discount to the weighted average multiple of division peers.