Dividend Delight: Expanding through strategic acquisitions in the marketing arena

Over the past quarter-century, the industry landscape has undergone a transformative journey, driven by the seismic shift from paper-based advertising to the digital realm. The advent of the internet, social media, and advanced technology has brought about a revolution in the way businesses connect with their audiences. In this dynamic era of ever-evolving communication channels, understanding the interplay between traditional print and the digital frontier is essential.

IVE Group (ASX: IGL) describes itself as Australia’s leading holistic marketing company.

The company is on a mission to provide an unmatched breadth and depth of offering, guiding their clients from idea to execution. They do this through a multi-channel approach with a wide range of marketing solutions. These include:

Creative Services

IVE Group's Creative Services segment is focused on visual, motion, digital, personalised, and structural design. The company excels in delivering large-scale marketing campaigns that embody quality, speed, and cost-efficiency. The mission of their expert teams is to create engaging content and elevate clients' brand awareness and drive growth.

Data-Driven Communications

Understanding data has become an integral part of business. IVE Group looks to assist businesses uncover new opportunities, enhance customer experiences, boost revenue, and optimise operations. The company leverages data to provide deep customer insights and specialised marketing technology services.

Production & Distribution

IVE Group's Production & Distribution segment covers all aspects of marketing production including print, retail display, premiums, merchandising, fulfilment, and logistics. Whether it's catalogues, magazines, packaging, or point-of-sale materials, IVE Group offers a diverse range of services coupled with a wealth of production experience.

Integrated Marketing

IVE Group's Integrated Marketing segment offers a simplified, holistic solution for clients seeking a one-stop-shop for their marketing needs. By integrating creative, data-driven communication, production, and distribution capabilities into a single, streamlined offering.

IVE Group serves a wide range of well known companies.

While its largest customer represents 8% of total revenue the top 20 account for only 38% displaying a well diversified customer profile.

Recent Acquisitions

Last week IVE Group announced that it had signed a binding agreement to acquire 100% of JacPak Pty Ltd.

The deal for $35 million reflects a multiple of FY23 Earnings Before Interest Tax Depreciation and Amortisation (EBITDA) of 5.8. JacPak, with annual revenues of approximately $45 million, is a prominent player in the Australian packaging industry, specifically in the folding cartons segment, valued at $800 million. JacPak specialises in short to medium run, fibre-based folding cartons. Their focus on innovative, high-quality carton solutions caters to a diverse range of industries, including fast-moving consumer goods (FMCG), food, cosmetics, pharmaceuticals, and more.

The transaction is expected to be finalised by 31 October 2023, with funding provided by IVE Group's newly established acquisition facility.

It comprises $27.9 million payable at completion, $4 million as deferred consideration contingent on performance metrics over a year, and the absorption of $3.1 million in equipment finance leases. JacPak will retain its operational independence while collaborating closely with IVE Group to explore growth opportunities by offering IVE's extensive services to its existing client base. Ashley Tomlin, JacPak's current owner, will continue to lead the company post-acquisition.

IVE Group has ambitious plans for this venture, aiming to realise $2.4 million in annualised synergies by the start of FY25. Once these materialise, management expects to achieve EBITDA of around $8.4 million and Net Profit After Tax (NPAT) of approximately $3 million leading to an earnings per share increase of around 7% relative to the previous FY24 mid-point guidance.

Commenting on the acquisition of JacPak, IVE Group CEO Matt Aitken said:

“Over the last two years we have communicated our strategic intention to enter the short to medium run folding cartons segment of the Australian packaging sector. We are pleased to be acquiring a solid entry point into the sector through the cornerstone acquisition of a business of the calibre of JacPak - a market leading, profitable and very well respected business.”

This follows on from the 2022 acquisition of competitor Ovato Limited.

Ovato’s assets were acquired for a net purchase consideration (including transaction costs) of $16 million. As a result of the transaction, IVE Group has become the only large scale heat set web offset (HSWO) print producer in Australia marking a significant consolidation of the sector. By acquiring Ovato's assets the company mitigates transaction risk and any legacy issues within Ovato Limited. At the time of the transaction management were confident that the move not only bolsters IVE Group's customer base but also enhances service delivery, strengthens their distribution network, and opens avenues for cross-selling their diversified offerings to the acquired customer base.

Recent Financial Results

IVE Group delivered its FY23 full year results in late August and received a mixed reaction from the market.

The company's revenue increased significantly to $967.4 million, a 27.5% rise compared to the previous year. This was achieved via both organic growth and the contribution of $136 million in revenue via the Ovato acquisition. Earnings per share reached 26.4 cents per share, increasing 14.5% increase compared to the prior period.

Cash on hand remains solid at $44.9 million, with operating cash flow generated for FY23 of $23 million. However, net debt increased to $124.2 million, primarily due to the Ovato acquisition, including investment in inventory and integration expenses. IVE Group paid out a total fully franked dividend of 18 cents for FY23 representing a yield on the $1.94 share price of just over 9% and an increase of 9% on the prior year. No doubt an impressive payout but we remain vigilant of the sustainability of the payout ratio.  

Outlook

Based on underlying diluted earnings per share of 25 cents IVE Group is trading on an earnings multiple at the time of writing of around 7.5.

While already cheap, should the business execute on the synergies it expects from its recent acquisitions our analysis indicates that it may surprise further on the upside. The company has made no secret of its desire to make further acquisitions to align with its existing strategy. We feel IVE Group is one to watch over the next 12 months, with the benefit of getting paid while you wait.​

Disclaimer: IVE Group (ASX: IGL) is currently held in the TAMIM Portfolio.