Acquisition of 3C! Packaging, Inc.

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014

17 September 2020

Essentra PLC

Acquisition of 3C! Packaging, Inc.

Introduction

Essentra PLC ("Essentra" or the "Company"), a leading global provider of essential components and solutions, today announces that it has signed a sale and purchase agreement (the "SPA") to purchase the entire issued share capital of 3C! Packaging, Inc. ("3C!") from each of Joseph Elphick, the Joseph Gerard Elphick Revocable Trust U/A/D November 5, 2010 and the Joseph G Elphick Legal Trust U/A/D December 21, 2021 (the "Acquisition") on a cash free, debt free basis, for total consideration of $65 million (approximately £50 million¹) (the "Consideration"), with completion today. The Consideration has been paid in cash.

3C!, headquartered in North Carolina, USA, is a leading designer and manufacturer of custom folding cartons, printed literature, foil and flexible packaging and labels focused on the pharmaceuticals and healthcare sectors. On completion of the Acquisition, 3C! will join Essentra's Packaging division.

The Acquisition meets Essentra's strategic and financial criteria, by creating significant value, strengthening the Company's customer proposition and offering significant synergies.

Highlights of the Acquisition include:

-      3C! is a strategically located and industry leading packaging business, allowing Essentra to enhance its position in the pharmaceutical packaging space;

-      the Acquisition is expected to further strengthen Essentra's industry leading packaging business, adding long-standing relationships with key blue-chip customers in the US pharmaceutical sector;

-      creation of a North Carolina hub with three sites positioned in the number one pharmaceutical manufacturing area of the USA;

-      3C!'s leading, proprietary serialisation technology will supplement the Company's added value services;

-      the 3C! leadership team will join the Company, providing significant experience in speciality packaging and serving the US pharmaceutical market;

-      the Consideration represents a 5.7x multiple of pro-forma 3C! adjusted EBITDA of $7.3m (year to 30 June 2020) plus anticipated c.$4m synergies^2,3,4;

-      Acquisition meets internal ROIC benchmark by year 3; and

-      revenue and margin synergies are expected from combining the Company's and 3C!'s customer base, optimised carton competitiveness and procurement synergies.

Paul Forman, Chief Executive Officer of Essentra, commented:

"3C! is a strong fit for Essentra with excellent growth prospects. The business further strengthens our position in pharmaceutical and healthcare packaging in core product areas we know well, in addition to bringing valuable new innovation to Essentra with its serialisation technology. The acquisition of 3C! follows the successful integration of Nekicesa which has performed strongly in the first year of Essentra ownership. With 3C! we will continue to build the Packaging division's track record for identifying, acquiring and integrating high quality businesses that meet our disciplined criteria and deliver sustainable value to Essentra over the long-term."

3C! overview

3C! is a leading designer and manufacturer of custom folding cartons, printed literature, foil and flexible packaging and labels, with 91%² of revenue in the year to 30 June 2020 generated from pharmaceutical and healthcare customers.

Founded in 1979, 3C! is a privately held, family owned business headquartered in North Carolina, USA. The business is strategically located close to some of the biggest pharmaceutical clients in the US and has long-standing relationships with key blue-chip customers.

3C! is led by a highly experienced management team with significant experience in speciality packaging and serving the pharmaceutical market. It has a workforce of 280 multiskilled, cross-trained employees.

3C! has a strong financial track record of revenue and margin growth. Between 2016 and 2020, 3C!'s revenue grew at a compound annual growth rate ("CAGR") of 11.5%². In the year to 30 June 2020, 3C! delivered revenue of $48.8 million² at an adjusted EBITDA margin of 14.9%^2,4. In the year to 30 June 2020, revenue was split approximately: 60%² (folding cartons), 29%² (printed literature) and 11%² (flexible packaging and labels). 3C! has a state-of-the-art design centre and offers additional value add services, including its proprietary serialisation technology.

3C! is well-positioned for further development, given the compelling end-market dynamics of the packaging industry and 3C!'s organic growth initiatives. The Company anticipates additional revenue opportunities for 3C! through additional cross selling product opportunities with its existing strong, blue-chip customer base, new blue-chip customers onboarding and new product offerings and initiatives. There is also significant margin improvement and opportunities through lean manufacturing initiatives, increasing efficiency and reducing costs.  The Company expects c.$4m in annual recurring synergies by year 3 delivered primarily through cost synergies, largely through network optimisation and procurement, continuous improvement and applying Essentra supplier arrangements and expertise. The cost to achieve these synergies of $3.2m is spread over the next 2 years. Further, the acquisition significantly accelerates the ability to recognize $4.3m (after tax) of deferred tax assets.

As at 30 June 2020, 3C! had gross assets of $18.9 million² and Profit before Tax of $3.0 million² in the year to 30 June 2020.

The Acquisition constitutes a Class 2 transaction for the purposes of the FCA's Listing Rules.

The person responsible for releasing this announcement is Jon Green (General Counsel & Company Secretary).

¹ Based on GBP:USD exchange rate of 1.30 as of 16 September 2020

² Based on reviewed, unaudited financial information

³ Full year synergies expected to be achieved by year 3

⁴ Adjustments made to 3C! Packaging management's adjusted EBITDA of c.$7.9m total c.$0.6m of downward adjustments and comprise adjustments for COVID-19 related payroll tax credits, reversing an inventory reserve, normalising travel expenses post COVID-19, a customer rebate and normalised bonus adjustments.

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IMPORTANT NOTICES

This Announcement is not for public release, publication, distribution or forwarding, in whole or in part, directly or indirectly, in or into the United States, Australia, Canada, the Republic of South Africa, Japan or any other jurisdiction in which such release, publication, distribution or forwarding would be unlawful.

All information regarding 3C! is based on information provided by the management of 3C! and has not been independently verified and accordingly, each of the Company, Jefferies, Peel Hunt, their respective affiliates and their respective Representatives expressly disclaim, to the maximum extent permitted by law, any responsibility or liability arising in connection with the information in this Announcement relating to 3C! Unless otherwise indicated, historical financial information relating to 3C! has been extracted without adjustment from 3C!'s financial statements. Such financial statements have not been audited but reviewed, the objective of which is not to express an opinion regarding the financial statements as a whole. A review is substantially less in scope than an audit and in this case was limited to the application of analytical procedures to management's financial data and making inquiries of 3C!'s management. The information in this Announcement is subject to change.

Certain statements in this Announcement are forward-looking statements with respect to the Company's expectations, intentions and projections regarding its future performance, strategic initiatives, anticipated events or trends and other matters that are not historical facts and which are, by their nature, inherently predictive, speculative and involve risks and uncertainty because they relate to events and depend on circumstances that may or may not occur in the future. All statements that address expectations or projections about the future, including statements about operating performance, strategic initiatives, objectives, market position, industry trends, general economic conditions, expected expenditures, expected cost savings and financial results are forward‐looking statements. Any statements contained in this Announcement that are not statements of historical fact are, or may be deemed to be, forward‐looking statements. These forward-looking statements, which may use words such as "aim", "anticipate", "believe", "could", "intend", "estimate", "expect", "may", "plan", "project" or words or terms of similar meaning or the negative thereof, are not guarantees of future performance and are subject to known and unknown risks and uncertainties. There are a number of factors including, but not limited to, commercial, operational, economic and financial factors, that could cause actual results, financial condition, performance or achievements to differ materially from those expressed or implied by these forward‐looking statements. Many of these risks and uncertainties relate to factors that are beyond the Company's ability to control or estimate precisely, such as changes in taxation or fiscal policy, future market conditions, currency fluctuations, the behaviour of other market participants, the actions of governments or governmental regulators, or other risk factors, such as changes in the political, social and regulatory framework in which the Company operates or in economic or technological trends or conditions, including inflation, recession and consumer confidence, on a global, regional or national basis. Given those risks and uncertainties, readers are cautioned not to place undue reliance on forward-looking statements. Forward-looking statements speak only as of the date of this Announcement. Each of the Company, Jefferies and Peel Hunt expressly disclaims any obligation or undertaking to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise unless required to do so by applicable law or regulation.

No statement in this Announcement is intended to be a profit forecast or profit estimate for any period and no statement in this Announcement should be interpreted to mean that earnings, earnings per share or income, cash flow from operations or free cash flow for the Company for the current or future financial periods would necessarily match or exceed the historical published earnings, earnings per share or income, cash flow from operations or free cash flow for the Company.