IPO Launch: Pactiv Evergreen Proposes Terms For $800 Million IPO

IPOStreet

Pactiv Evergreen (PTVE) intends to raise $800 million in an IPO of its common stock, according to an S-1 registration statement.

Lake Forest, Illinois-based Pactiv was founded to produce food and beverage packaging solutions for a wide range of product types.

Management is headed by director and Chief Executive Officer Mr. John McGrath, who has been with the firm since before 2010 and was previously in senior roles in various departments of the company.

Below is a brief overview video of a sample compostable hinged lid container product:

Source: Pactiv Foodservice Marketing

The company counts major global companies as customers, including McDonald's, Starbucks, Tyson, KraftHeinz, Conagra, Coca Cola and Danone.

The firm offers more than 13,000 products produced by 900 production lines and is the largest producer of free food and beverage packaging in North America, according to management.

The company's sole shareholder is Packaging Finance Limited [PFL], controlled by Graeme Hart. PFL is also a major stockholder in the Reynold Group (REYN).

The firm sells its products through distributors and directly to major corporations.

Its Foodservice and Food Merchandising segments use an in-house direct sales force and also 'utilizes third-party brokers for selected products and accounts.'

Pactiv's Beverage Merchandising segment pursues clients via a direct field sales force.

Selling, G&A expenses as a percentage of total revenue have been increasing as revenues have dropped.

The Selling, G&A efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of Selling, G&A spend, dropped to a negative (1.0x) in the most recent reporting period.

According to a 2020 market research report by Grand View Research, the global market for food packaging was an estimated $303 billion in 2019.

The market is expected to grow at a CAGR of 5.2% from 2020 to 2027.

The main drivers for this expected growth are an increasing desire for food and beverage convenience, greater performance, improved shelf life and a reduced environmental footprint.

Also, the U.S. market is expected to grow via an increased urban population desiring packaged food and single-serve packaging.

Below is a chart indicating the historical and projected U.S. market size growth by type of package:

pactivmkt

Major competitive or other industry participants include:

  • Dart Container
  • Berry Global Group (BERY)
  • Genpak
  • Sonoco
  • Paper Excellence Group
  • Amcor
  • Sealed Air Corporation
  • Silgan holdings
  • SIG Combibloc
  • Elopak
  • Huhtamaki Oyj
  • Stora Enso Oyj

Pactiv’s recent financial results can be summarized as follows:

  • Contracting topline revenue
  • Lowered gross profit and uneven gross margin
  • Increased operating profit and operating margin
  • A swing to net income
  • Uneven cash flow from operations

Below are relevant financial results derived from the firm’s registration statement:

pactivpl

Source: Company registration statement

As of June 30, 2020, Pactiv had $1.6 billion in cash and $10.2 billion in total liabilities.

Free cash flow during the twelve months ended June 30, 2020, was $278 million.

IPO Details

Pactiv intends to raise $800 million in gross proceeds from an IPO of its common stock, with a proposed midpoint price of $19.50 per share.

Assuming a successful IPO, the company’s enterprise value at IPO would approximate $9.2 billion, excluding the effects of underwriter over-allotment options.

Excluding effects of underwriter options and private placement shares or restricted stock, if any, the float to outstanding shares ratio will be approximately 23.39%.

Management says it will use the net proceeds from the IPO as follows:

We currently intend to use the net proceeds that we receive from this offering, as well as $653 million of cash on hand, to repay certain of our indebtedness (and associated redemption premiums) in the following priority: first, up to $650 million of the 7.000% Senior Notes due 2024 (the “2024 Notes”) and second, a portion of the 5.125% Senior Secured Notes due 2023 (the “2023 Notes”). Assuming an initial public offering price at the midpoint of the range set forth on the cover page of this prospectus, we expect to repay the full $650 million aggregate principal amount of outstanding 2024 Notes and to repay $735 million aggregate principal amount of the outstanding 2023 Notes.

Management’s presentation of the company roadshow is available here.

Listed bookrunners of the IPO are Credit Suisse, Citigroup, BofA Securities, Goldman Sachs, Baird, BMO Capital Markets, Deutsche Bank Securities, HSBC, RBC Capital Markets, Academy Securities, Loop Capital Markets, Rabo Securities, Ramirez & Co, and Siebert Williams Shank..

Commentary

Pactiv is seeking public investment to begin paying down its large debt load. The firm is private equity owned.

The firm’s financials show contracting revenue in the last two reporting periods, but increasing operating profit and a swing to net income. Operating cash flow has dropped significantly in the most recent period.

Selling, G&A expenses as a percentage of total revenue have been increasing, a negative sign; its Selling, G&A efficiency rate has dropped sharply.

The long-term market opportunity for food and beverage packaging appears to be solid as consumers seek more individualized packaged products, especially with greater environmental sensitivity.

Credit Suisse is the lead left underwriter and IPOs led by the firm over the last 12-month period have generated an average return of negative (3.0%) since their IPO. This is a middle-tier performance for all major underwriters during the period.

As to valuation, compared to competitor Berry Global, the Pactiv IPO appears pricey, as Berry is growing faster and producing earnings while Pactiv’s revenue is contracting while producing only scant net income.

Given the firm’s contracting revenue and heavy debt load, I’m not optimistic on PTVE in the short term.

My opinion on the IPO is NEUTRAL.

Expected IPO Pricing Date: September 16, 2020.

Glossary Of Terms

(I have no position in any stocks mentioned as of the article date, no plans to initiate any positions within the next 48 hours, and no business relationship with any company whose stock is mentioned in this article. IPO stocks can be very volatile in the days immediately after an IPO. Information provided is for educational purposes only, may be in error, incomplete or out of date, and does not constitute financial, legal, or investment advice.)

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