Transcontinental Inc. Announces Transformational Acquisition of Coveris Americas, Becoming a North American Leader in Flexible Packaging

Montréal, April 2, 2018 - Transcontinental Inc. (TSX: TCL.A, TCL.B) ("TC Transcontinental" or the "Corporation") is pleased to announce that it has entered into a definitive agreement to acquire the business of Coveris Americas (the "Acquisition"), a business held by Coveris Holdings S.A., a portfolio company of Sun Capital Partners, Inc. The purchase price is US$1.32 billion (approximately C$1.72 billion), subject to customary closing adjustments (the "Purchase Price").

Coveris Americas is one of the top ten converters of flexible packaging and other value-added products in North America based on revenues for its fiscal year ended December 31, 2017. Headquartered in Chicago, Illinois, Coveris Americas manufactures a variety of flexible plastic and paper products, including rollstock, bags and pouches, coextruded films, shrink films, coated substrates and labels. As of December 31, 2017, Coveris Americas operated 21 production facilities worldwide, namely in the Americas, the United Kingdom and Australasia. Coveris Americas has over 3,100 employees, the majority of whom are located in the Americas. For its fiscal year ended December 31, 2017, Coveris Americas generated US$966 million in revenues and US$128 million in Adjusted EBITDA.

"Today's announcement marks a turning point in TC Transcontinental's 42-year history. This transaction crystallizes our strategic shift toward flexible packaging and solidifies our commitment to profitable growth," said Isabelle Marcoux, Chair of the Board of Transcontinental Inc. "We are convinced that this transformational acquisition will be a driver in the creation of long-term value for all of our stakeholders. It is with pride that we begin the next chapter of our successful journey with Coveris Americas, its employees and customers, building on our values of respect, teamwork, performance and innovation."

"We are thrilled to announce such a game-changing transaction for TC Transcontinental and to bring our vision of becoming a North American leader in flexible packaging to life," said François Olivier, President and Chief Executive Officer of TC Transcontinental. "The acquisition of Coveris Americas adds significant depth and scale to our existing platform, with flexible packaging operations now expected to be our largest division in terms of TC Transcontinental's pro forma revenues based on its fiscal year 2017. This transaction complements and bolsters our existing product offering in several flexible packaging end markets including dairy, pet food and consumer products. Additionally, it allows us to enter new and attractive flexible packaging end markets such as agriculture, beverage and protein. We are looking forward to building on our combined strengths and to continue working with Coveris Americas' loyal customers, many of whom are market leaders. We are also eager to welcome Coveris Americas' talented employees who will bring their leading-edge expertise to TC Transcontinental."

Craig Reese, Chief Executive Officer of Coveris Americas, said: "Today marks an exciting milestone for Coveris Americas as we join TC Transcontinental, a company that shares our passion for growth through innovation, service and quality."

Marc Leder, Co-Chief Executive Officer of Sun Capital Partners, Inc., whose affiliate owns Coveris Holdings S.A., added: "We are extremely proud of our partnership with the management team to grow and improve Coveris Americas, and we are confident that TC Transcontinental is the right home for the business to continue its industry leadership." 

Complementing its solid printing and media operations, this Acquisition significantly diversifies TC Transcontinental's business into flexible packaging. Based on Coveris Americas' financial results for its fiscal year ended December 31, 2017 and on TC Transcontinental's financial results for its fiscal year ended October 29, 2017, the pro forma consolidated revenues and Adjusted EBITDA for the combined entity for fiscal 2017 are estimated at C$3.3 billion and C$564 million, respectively, with flexible packaging accounting for approximately 48% of total revenues.

The terms of the Acquisition have been approved by the boards of directors of both TC Transcontinental and Coveris Americas. The Acquisition, which remains subject to certain customary closing conditions and receipt of applicable antitrust approvals, is expected to be completed in the third quarter of TC Transcontinental's fiscal year 2018.

ACQUISITION RATIONALE

• The Acquisition positions TC Transcontinental among the top ten flexible packaging converters in North America
  • Creates a leading flexible packaging supplier in North America with pro forma combined revenues attributable to the packaging division of C$1.6 billion and Adjusted EBITDA of C$210 million in fiscal 2017.

• The Acquisition provides TC Transcontinental with a strong position across a broad range of flexible packaging's growing end markets
  • Strong pro forma position in dairy, pet food, beverage, agriculture and consumer products.

• The Acquisition expands TC Transcontinental's product offering with best-in-class capabilities and greater film manufacturing capabilities
  • Complementary manufacturing capabilities in printing, lamination, converting and extrusion, with significant expertise in high-end blown extrusion as well as cast extrusion;
  • Expansion of product offering with barrier films, thermoformed films, shrink bags, cast nylon, multi-wall bags, banana tree bags, mulch films and coatings, among others; and
  • Capability to insource a portion of film production.

• The Acquisition enhances TC Transcontinental's relationships with large, market leading customers
  • Coveris Americas brings a broad portfolio of approximately 3,500 customers, including longstanding relationships with many key accounts.

• The Acquisition provides an integrated flexible packaging platform leading to potential economies of scale
  • Adds an extensive footprint of 21 well-invested production facilities in the United States, Canada, Ecuador, Guatemala, Mexico, the United Kingdom, New Zealand and China to TC Transcontinental's 7 existing flexible packaging facilities; and
  • Increases business scale thereby strengthening TC Transcontinental's competitive position.

HIGHLIGHTS OF FINANCIAL BENEFITS OF THE ACQUISITION

• Immediately accretive to adjusted net earnings per share and free cash flow per share before cost synergies 

• Expected annual cost synergies of approximately US$20 million to be achieved over a 24-month period following the Acquisition, generated mainly from economies of scale.

FINANCING OF THE ACQUISITION

Financing Highlights

• The Acquisition will be financed through a combination of:
  • Cash on hand; and
  • Fully-committed financing from CIBC and Scotiabank providing term loans.

• TC Transcontinental's pro forma Net Debt to Adjusted EBITDA is expected to be 3.2x at the closing date of the Acquisition and to decline close to 2.0x by the end of fiscal year 2020.

ADVISORS

BMO Capital Markets and J.P. Morgan Securities LLC acted as financial advisors to TC Transcontinental on the Acquisition.

Legal advice is being provided to TC Transcontinental with respect to U.S. law, by Morgan, Lewis & Bockius LLP, and, with respect to Canadian law, by Stikeman Elliott LLP. 

CONFERENCE CALL INFORMATION

TC Transcontinental will hold a conference call for the financial community today at 8:30 a.m. (Eastern Daylight Time). The dial-in numbers are 1 647 788-4922 or 1 877 223-4471 and the conference ID is 6865698. Media may hear the call in listen-in only mode or tune in to the simultaneous audio broadcast on the Corporation's website, which will then be archived for 30 days. For the conference recording playback, dial in numbers are 1 416 621-4642 or 1 800 585-8367. 

AVAILABILITY OF DOCUMENTS 

A copy of the securities purchase agreement relating to the Acquisition will be available on SEDAR (www.sedar.com) as part of the public filings of TC Transcontinental and on TC Transcontinental's website at www.tc.tc.

NON-IFRS MEASURES

This press release refers to financial measures that are not recognized under International Financial Reporting Standards (IFRS). A non-IFRS financial measure is a numerical indicator of a company's performance, financial position or cash flow that excludes or includes amounts, or is subject to adjustments that have the effect of excluding or including amounts that are included or excluded in most directly comparable measures calculated and presented in accordance with IFRS. Non-IFRS measures do not have any standardized meaning under IFRS and therefore are unlikely to be comparable to similar measures presented by other companies having the same or similar businesses.

The Corporation believes these measures are useful supplemental information. The following non-IFRS measures are used by the Corporation in this press release: EBITDA, Adjusted EBITDA, pro forma Adjusted EBITDA, adjusted net earnings per share, free cash flow per share and pro forma Net Debt to Adjusted EBITDA. The Corporation also presents in this press release the Adjusted EBITDA of Coveris Americas.

Please find below definitions of non-IFRS financial measures used by the Corporation and Coveris Americas herein:

"EBITDA" means the operating earnings before depreciation and amortization; when used in respect of TC Transcontinental, for the fiscal year ended October 29, 2017, and when used in respect of Coveris Americas, for the fiscal year ended December 31, 2017.

"Adjusted EBITDA" means the operating earnings before depreciation and amortization as well as restructuring and other costs (gains) and impairment of assets; when used in respect of TC Transcontinental, for the fiscal year ended October 29, 2017, and when used in respect of Coveris Americas, for the fiscal year ended December 31, 2017.

"pro forma Adjusted EBITDA" means the sum of the Adjusted EBITDA including pro forma adjustments of Coveris Americas for the fiscal year ended December 31, 2017, and the Adjusted EBITDA of TC Transcontinental for the fiscal year ended October 29, 2017.

"adjusted net earnings per share" means the net earnings of TC Transcontinental before restructuring and other costs (gains) and impairment of assets, net of related income taxes, for the fiscal year ended October 29, 2017, divided by the weighted average number of issued and outstanding shares of TC Transcontinental as at the end of the fiscal year ended October 29, 2017.

"free cash flow per share" means the adjusted operating earnings of TC Transcontinental before depreciation and amortization less the sum of capital expenditures, interest paid and income taxes paid for the fiscal year ended October 29, 2017, divided by the weighted average number of issued and outstanding shares of TC Transcontinental as at the end of the fiscal year ended October 29, 2017.

"pro forma Net Debt to Adjusted EBITDA" means TC Transcontinental's projected indebtedness as of closing of the Acquisition divided by the pro forma Adjusted EBITDA.

Please find below the reconciliation of certain non-IFRS financial measures used by the Corporation and Coveris Americas herein:

ABOUT TC TRANSCONTINENTAL

TC Transcontinental is Canada's largest printer and a key supplier of flexible packaging in North America. The Corporation is also a leader in its specialty media segments. TC Transcontinental's mission is to create products and services that allow businesses to attract, reach and retain their target customers.

Respect, teamwork, performance and innovation are strong values held by TC Transcontinental and its employees. TC Transcontinental's commitment to its stakeholders is to pursue its business activities in a responsible manner.

TC Transcontinental currently has over 6,100 employees in Canada and the United States, and had revenues of approximately $2.0 billion for the fiscal year ended October 29, 2017. For more information, visit TC Transcontinental's website at www.tc.tc.
For information: 

Media
Nathalie St-Jean
Senior Advisor, Corporate Communications 
TC Transcontinental
Telephone: 514-954-3581
nathalie.st-jean@tc.tc
www.tc.tc

Financial Community
Shirley Chenny
Advisor, Investor Relations
TC Transcontinental
Telephone: 514-954-4166
shirley.chenny@tc.tc
www.tc.tc