In the latest move within the PVC recycling space to indicate that there is a serious race on now for dominance in the UK in this market, Epwin Group has announced that they have acquired Poly-Pure Ltd in a £15m deal.

Here is the statement that they have provided to the markets this morning:

Epwin Group Plc (AIM: EPWN) (“Epwin” or the “Group”), the leading manufacturer of energy efficient and low maintenance building products, with significant market shares, supplying the Repair, Maintenance and Improvement (“RMI”), new build and social housing sectors, today announces that it has completed the acquisition of Poly-Pure Ltd (“Poly-Pure”) for an initial cash consideration of £15 million on a debt-free and cash-free basis, funded from the Group’s existing facilities.

Background to Poly-Pure

Poly-Pure is a leading UK materials re-processor, recycling post-consumer and post-industrial PVC building materials, notably UPVC window frames. Established in 2018, Poly-Pure supplies re-processed PVC to a diverse customer base. The business is based in Norwich and has 25 employees.

In Poly-Pure’s financial year ended 31 July 2022, it expects to report revenues of c.£10 million (£4.7 million in its financial year to 31 July 2021) and adjusted EBITDA of c.£2.5 million (£0.4 million in the year to 31 July 2021). Underlying profit before tax for the year ended 31 July 2022 is expected to be £2.4 million. Poly-Pure has net assets on acquisition of approximately £3m.

The acquisition of Poly-Pure is expected to be margin accretive for Epwin at the adjusted EBITDA level and is expected to be immediately earnings enhancing.

Strong strategic rationale

A key aspect of the Group’s strategy is to execute value enhancing acquisitions. The acquisition is a strong strategic fit with the Epwin Group:

·    Growth opportunity: Poly-Pure has generated strong levels of revenue and EBITDA growth since its establishment, with a diverse and growing customer base and with a programme to expand its processing capacity. There is increasing industry focus on improving the use of reprocessed materials in manufacturing and Epwin believes there are a range of opportunities for Poly-Pure to continue to execute its growth plan;

·    Cost synergies: Poly-Pure has the ability to provide Epwin with a further, cost effective, supply of recycled PVC, with the potential for operational efficiencies and cost benefits;

·    Sustainability: the acquisition, alongside Epwin’s existing capital expenditure programme, accelerates the Group’s ambitions to integrate an even greater proportion of recycled materials into its products;

·    Material sourcing: Poly-Pure has strong links within the industry and a proven ability to source post-industrial and post-consumer recyclable building plastics materials. The greater ability to re-process waste materials provides Epwin with an additional source of raw material.

Transaction details

The initial cash consideration of £15 million on a cash-free debt-free basis represents a multiple of 6x estimated 2022 adjusted EBITDA. Further deferred consideration may become payable, subject to an earnout mechanism, in equal instalments based upon the adjusted EBITDA of Poly-Pure in the three calendar years to 31 December 2023, 31 December 2024 and 31 December 2025 respectively, capped in aggregate at a further £15 million in cash which, if achieved, would equate to a 31 December 2025 adjusted EBITDA multiple after synergies of 3x.

The acquisition will be funded from existing Group facilities. As at 30 June 2022 covenant net debt was £7.3 million which represented 0.3x adjusted EBITDA, providing the Group with in excess of £65 million of headroom on its facilities.

The directors of Poly-Pure will remain with the business, working within Epwin’s Extrusion and Moulding segment to ensure the Group’s recyclate requirements are serviced and maximised.

Jon Bednall, Chief Executive Officer, said:

“I am pleased to welcome Poly-Pure to Epwin. Poly-Pure is a high-quality, growing business and a strong strategic fit, which will enable us to further bolster our recycling capabilities and accelerate delivery of our sustainability agenda.

We see good opportunities to derive synergistic benefits with our existing operations, increase the proportion of recycled material used in our products and further improve the already strong environmental credentials of the Group’s products. The acquisition also furthers our strategy of broadening our materials capabilities for the future. We welcome Poly-Pure’s management and employees to the Epwin Group.”

You can read the original statement here:

This move from Epwin indicates the growing momentum from systems companies to go further with recycling capabilities. Almost every major PVCu systems company now has UK-based recycling facilities.

There is a genuine race to keep all post-consumer PVC out of the ground and in the supply chain. Given the recent supply chain constraints and shortages of materials, the more we can keep in the circular manufacturing process the better.

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