Did Jabil overpay for Nypro?


The elephant in the room at last week's MD&M West in Anaheim, CA was the announcement Feb. 4 that EMS giant Jabil Circuit is paying $665 million to acquire Nypro, one of the—if not the—largest independent plastics molders in the world.

Jabil wants Nypro so that it can build scale and advance its strategic plan in plastics molding in the global healthcare market. Major medical device manufacturers want suppliers who can make (and even design) their products in a soup-to-nuts process anywhere in the world.

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The Nypro deal loomed over MD&M West in Anaheim.

The combination of Nypro's advanced plastics manufacturing capabilities, particularly in the United States, with Jabil's electronic manufacturing services (EMS) capabilities creates a juggernaut. A nice additional plum in the planned takeover is Nypro's growing sales in rigid packaging-a capability that will be unique in the EMS industry, which was created to accommodate the personal computer outsourcing boom in the 1990s.

A Jabil-Nypro combination significantly raises the bar in the injection molding business, which has seen huge venture capital investment and consolidation to better serve the medical market. The next biggest global player in plastics molding for medical customers in medical is Phillips-Medisize at $500 million in annual sales. Nypro at $1.2 billion in sales joins Jabil Circuit, which had annual sales in its 2012 fiscal year of $17.2 billion.  

Every molder I talked to at MD&M seemed to have a different point of view on the fairness of the acquisition price.

At 55% of annual sales, it seemed at first blush as if Jabil got Nypro at a great price. But valuation in plastics processing tends to be based more on net assets and profitability than on gross revenues.

Profitability has been steadily declining at Nypro, and in the fiscal year ending last June, the company had a net (post-tax) loss of $6,007,000. That compares to profits of $2.6 million in FY 2009 and $18.3 million in FY 2007.

Nypro was hammered in 2011-2012 by the BlackBerry nosedive in sales to the smart phone market. Stock prices at the company formerly known at Research in Motion dropped from more than $230 per share in 2007 to as low as $6.22, dragging key suppliers such as Nypro down with it.

The good news about Nypro is that its plants in the United States are profitable.

As of June 30, 2012, Nypro had total assets of $720.6 million, including $256.2 million in capital equipment. On that basis, Jabil paid a multiple of almost 2.6 for Nypro's capital assets. That seems high.

But Nypro can't really be valued strictly on its financials.

What Jabil bought was a 40-year history of outstanding performance in the medical and other markets. It bought a solid-gold reputation, a progressive technical approach, and a staff of blue-chip quality. You can't put a dollar value on those types of assets. And they are rarely for sale.

No. Jabil did not overpay for Nypro.

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