Shore Capital analyst Clive Black described the acquisition as a “marginal addition”.
“It doesn’t break the bank in terms of M&A activity,” he said. “It is a marginal addition. It boosts their presence and authority in Europe and will be interesting to see what PVI brings into Devro.”
Black said the major issues for Devro at the moment were the company’s two big capital investments in new sites in China and the US, and how well they would perform once up and running.
A £50m investment in a plant near Shanghai is well under way to tap into rapidly growing demand for animal protein in Asia. A new £40m plant in South Carolina, which will replace its existing US manufacturing site, is also near completion. Both will become operational in 2016.
Terms of deal
Under the terms of the deal, Devro agreed to pay €12.5m (£8.74m) for the firm on a debt-free basis, with a possible additional payment of up to €1m under an earn-out arrangement.
The acquisition, which is subject to clearance by certain EU jurisdictions, will make FTSE-listed Devro the leading collagen gel supplier for co-extrusion worldwide.
PVI supplies collagen gel products to the meat processing industry in Europe, and has customers throughout the world.
Devro provides collagen casings to the food industry, supplying a wide range of products and technical support to manufacturers of sausages, salamis, hams and other cooked meats.
It has five manufacturing sites based in Scotland, Australia, the Czech Republic and the US and employs 2,200 staff.
No job losses anticipated
A spokesman for Devro told MTJ there were no job losses anticipated as a result of the acquisition, and the PVI site in Holland would continue to operate “for the foreseeable future”.
“PVI will be integrated into the Devro group and operate as Devro BV, once the acquisition has been completed,” spokesman Christoph Klink said.
“PVI has a single site in Holland and is currently completing a new manufacturing hall there which, together with the Devro systems and operating procedures, will help to improve the product and service to gel customers around the world.”
Neil Savage, currently manufacturing manager at Devro, would join the Dutch site as managing director working closely with PVI director Peter Visser “in the integration of the operations and expertise”, Klink added.
Growth opportunities
Co-extrusion using collagen has been around for a considerable time, but in the last few years, significant growth opportunities replacing cellulose on hot dogs have started to appear, according to Devro.
“The advantages of lower costs, less labour, greater food safety and reduced waste issues have become key and we see them continuing to make a good economic case for a switch,” said Simon Webb, Devro group finance director. “With innovation in gels and machinery we expect this and other opportunities to develop.
“This acquisition supports Devro’s strategy by growing sales of collagen products through product differentiation and enhancing value for customers. It will strengthen our presence in Europe, extending our product knowledge and technical expertise in a specialist sector.”
Devro reported sales of £232.3m and profit before tax (before exceptional items) of £26.1m for the year ended 31 December 2014.