Signature Group Holdings, Inc. (SGH) has entered into a definitive stock purchase agreement to acquire the Global Recycling and Specification Alloys (GRSA) business of privately-held Aleris Corporation (Aleris) for $525 million.
The board of directors of Signature unanimously approved the proposed transaction. The transaction is subject to customary closing conditions, including regulatory approvals and clearance under the Hart-Scott Rodino Antitrust Improvements Act.
This marks the entry of Signature into the resurgent aluminum market in North America and Europe. GRSA, the largest independent aluminum recycler in the world, is positioned to take advantage of improving fundamentals reshaping global aluminum markets. Sectors such as automotive, aerospace, packaging, building and construction are all experiencing increased aluminum consumption. The automotive sector, in particular, is consuming more aluminum as government mandates require reduced carbon emissions and compel auto manufacturers to increase fuel efficiency.
Signature expects to name Terry Hogan, currently senior vice president and leader of Aleris’ Recycling and Specification Alloys business in North America, as president of the GRSA business effective upon closing the acquisition. Russell Barr, vice president and leader of Aleris’ recycling business in Europe is expected to serve as executive vice president, Europe.
Global recycled aluminum consumption is projected to grow 6.7 percent per year over the next decade, compared to primary aluminum consumption at 4.5 percent, according to Freedonia Group.
For the 12 month period ended June 30, 2014, Aleris reported that GRSA’s earnings before interest, taxes, depreciation and amortization, on an adjusted, stand-alone basis (Adjusted EBITDA) were $74.9 million. Also reported by Aleris, GRSA’s Adjusted EBITDA during the quarter ended September 30, 2014 is expected to be $4.6 million to $7.6 million higher than the Adjusted EBITDA in the quarter ended September 30, 2013. GRSA’s third quarter 2014 results are estimates and subject to changes based on Aleris management’s final review of financial results during the period.
Approximately 65 percent of GRSA’s business is conducted in North America, with 35 percent in Europe. GRSA operates a total of 24 facilities across 6 countries.
Under the terms of the stock purchase agreement, Signature will acquire GRSA for a purchase price of $525 million, comprised of $495 million in cash and $30 million in preferred stock in Signature. The purchase price represents a multiple of approximately 6.5 times GRSA’s Adjusted EBITDA as described above using the midpoint of the estimated improvements in third quarter results.
Signature expects to finance the acquisition with a combination of cash on hand, and the net proceeds from debt and equity financings. This includes the issuance of approximately $300 million of senior secured bonds in a private placement to qualified institutional buyers and certain non-U.S. persons, as well as a registered offering of Signature’s common stock, and a registered stapled rights offering of additional shares of its common stock to Signature stockholders at a date to be determined.
A portion of the rights offering will be backstopped by Zell Credit Opportunities Fund, L.P., an affiliate of Equity Group Investments, a private investment firm founded by Sam Zell. In connection with the transaction, Goldman Sachs will lead a committed bridge financing with Deutsche Bank. General Electric Capital Corporation will provide a $175 million asset-based lending facility to finance the growth of the company.
Published in the December 2014 Edition of American Recycler News
