It is seven years since control of Keter Group (formerly Keter Plastic) was sold to international investment fund BC Partners, in a dream exit, at a valuation of $1.7 billion. At that time, Keter Group’s annual percentage sales growth was in the double digits. BC Partners said that it saw in the company creativity and boldness that represented a big business opportunity.
Keter produces resin-based products for the home and garden, such as storage boxes, sheds, and Monobloc stackable plastic chairs. Sami Sagol, whose family sold 80% of the company in the deal, for $1.4 billion, said then, "A year ago we began discussions with eleven of the biggest investment groups in the world, all of which expressed interest in Keter. I am sure that the partnership with BC Partners, and exploiting its managerial and strategic assets, will enable us to accelerate Keter’s development from an international company to a global company in the fullest sense."
However, the creativity and boldness, at least as applied to the financial aspect of the takeover, led Keter to a completely different position. At the end of last week, the company announced that it had signed a debt rescheduling agreement with its main creditors. The creditors agreed to deferral of repayment of the credit extended to the company, amounting to €1.2 billion, on condition that the company was put up for sale - which will almost certainly be at a price substantially lower than BC Partners paid.
The sale process is expected to begin later this year and to be completed by mid-2024.
Earlier, in March this year, rating agency Moody’s downgraded Keter’s debt to Caa2, a junk rating, equivalent to S&P’s CCC rating. This step was taken in view of the debt repayment that Keter is due to make in October, which Moody’s estimated that the company would have difficulty in meeting.
Keter was founded in 1948 in Jaffa, as a factory making toys and home products, by Joseph Sagol, who handed over management of the company to his sons Sami and Itzhak in the 1980s. In 2016, the brothers (chiefly Sami Sagol) sold 80% of Keter to BC Partners for $1.4 billion, in a leveraged deal in which Keter was burdened with a large loan at an annual interest rate in the double digits.
At that time, this was not an unusual move for an investment fund seeking to generate a high return - a debt-financed high-price acquisition to be followed by a flotation that would reduce the leverage. An attempt was duly made to float Keter in 2021, but this was after several difficult years in its business, because of the high cost of servicing its debt, greater competition, and rises in raw material costs, leading to cumulative losses of about €1 billion in 2018-2020, and the attempt failed dismally.
Keter sought to raise hundreds of millions of dollars on the New York Stock Exchange to reduce the expensive debt weighing on it, at a valuation of $2.5 billion. In the end, it shelved the plan, apparently because it failed to obtain the valuation sought. Last December, "Globes" reported that, because of its weak results, Keter was examining downsizing its activity in Israel, after having laid off 100 people, most of them in Israel.
According to its website, Keter currently employs some 4,900 people in production facilities in Israel, the US, and Europe.
Keter Group’s financial statements are not made public, but the report by Moody’s gives some insight into the company’s financial position and even provides a forecast. According to preliminary figures, Keter Group had €1.64 billion revenue in 2022,slightly more than in 2021.
In 2020 and 2021, the company posted positive EBIT (earnings before interest and tax) of 3.5% and 3.0% of sales respectively, but in 2022 it switched to negative EBIT of 0.6% of sales. Its debt:EBIT ratio was 16.6 after the acquisition. The ratio fell to 6.8 in 2021, but in 2022 it rose again to 9.6, which is considered very high.
The company’s revenue is expected to fall in 2023 by about 10%, to some €1.5 billion.
Published by Globes, Israel business news - en.globes.co.il - on July 17, 2023.
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