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Gores Holdings V: The Acquisition Of Ardagh's Beverage Can Business Looks Intriguing


  • Gores Holdings V will acquire the beverage can division of Ardagh Group.
  • A boring business, but with great growth prospects.
  • I have started to build a position based on the fundamentals and the outlook.
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I don’t play the SPAC game, but earlier today, I initiated a position in Gores Holdings V (GRSV) which announced its transaction last week. It will be acquiring the beverage can business from the Ardagh Group (ARD) which will retain an 80% stake in the company. As I have been looking to increase my exposure to the beverage can sector and the price for the Ardagh division is quite reasonable, I have started building a position.

The screenshots of the presentation were taken from the SEC filings, and I apologize for the poor quality.

Explaining the deal

GRSV announced its deal last week and its share price actually moved down on the news, before recovering a little bit of the lost ground the next day. While the acquisition isn’t related to any "flavor of the month" type of deal which sent other SPACs soaring when they announced the umpteenth deal in the EV industry, I actually think there’s fundamental value to be unlocked for Gores Holdings V shareholders which have a 2-3 year time horizon.

GRSV is acquiring the beverage can business of the Ardagh Group, and the Ardagh Metal Packaging target will be acquired for a total consideration of $8.2B. This includes about 485 million shares of the SPAC that will be issued to the Ardagh Group (with a deemed value of $4.8B) while Gores Holdings V also will make a $3.4B cash payment. Ardagh Metal Packaging is a consistent top-3 player in the world in all three of its core areas with Ball Corporation (BLL) and Crown Holdings (CCK) as main competitors.

Source: SEC filings

The structure of the deal is quite straightforward. To satisfy the $3.4B cash payment, Gores Holdings will issue an additional 60M shares at $10 and use the $525M cash on hand. Additionally, the SPAC was anticipating

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This article was written by

The Investment Doctor profile picture

The Investment Doctor is a financial writer, highlighting European small-caps with a 5-7 year investment horizon. He strongly believes a portfolio should consist of a mixture of dividend and growth stocks.

He is the leader of the investment group European Small Cap Ideas which offers exclusive access to actionable research on appealing Europe-focused investment opportunities not found elsewhere. The a focus is on high-quality ideas in the small-cap space, with emphasis on capital gains and dividend income for continuous cash flow. Features include: two model portfolios - the European Small Cap Ideas portfolio and the European REIT Portfolio, weekly updates, educational content to learn more about the European investing opportunities, and an active chat room to discuss the latest developments of the portfolio holdings. Learn more.

Analyst’s Disclosure: I am/we are long GRSV. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (15)

Better to buy GRSV or GRSVU?
The Investment Doctor profile picture
@jakedavis I'm not quite sure, I am just writing put options on GRSV these days to get the premium, even if they expire OTM.
bazooooka profile picture
Not a bad one to just get some warrants near a buck and let this one play out for a few years.
Thanks- a very good story in high growth sold out market....I think this is the kind of business that gets rerated to 15x= 24 bucks
Some excellent analysis here and in this elevated market, I can't picture a better risk-adjusted return situation. One thing to add that improves the assessment still further. In the Citi conference call, the company said that "maintenance capex would be around $100 million in the early years and rises a bit above that in the later years...". So guessing the capex will be well short of the $165 million figure you've assessed for '24, so even more free cash flow. Incidentally, it was further mentioned that "dividends is one use of that, but there will also be further growth capex as well I'm sure. We have conversations going on at the moment with customers". I'll personally surmise this will be a key to Ardagh Metal Packaging retaining a high multiple of a growing EBITDA for years to come.
The Investment Doctor profile picture

Hi Pare, yes I didn't want to be overly optimistic, I am fairly confident sustaining capex will be less than $150M per year as there will be more synergies (on the capex front) as more plants open up.

I think the current fully-funded growth plan to 2024 and GRSV now trading at just 8X the 2024 EBITDA while competitors are trading at 12-14X their 2024 EBITDA should pave the way for a relatively easy 50-100% capital gains in the next 2-2.5 years. I think this is the second SPAC (after LOAK/DNMR) I find the valuation reasonable. I did sell out of DNMR below $30 as the valuation was getting inflated, so I missed the run there. And that's fine, because I invest based on fundamentals.
@The Investment Doctor All well put and to add another lever at work here that helps explain the forecast ramp in EBITDA even beyond the large capacity additions is the focus on specialty cans, where margins run 1.5x to 2x that of traditional cans. Ardagh's portfolio is currently around 43% specialty and expects to be at 60% by 2024. Given the level of expertise inherent in establishing these lines, this focus in addition to margin improvement, also provides something of a moat vs. any new entrants into the marketplace aside from the other current well-capitalized players, BLL and CCK. Which have their own expansion plans that fit into projected demand, yet as you mention are trading at higher valuations
the constant overhang from the 5% tranches of extra shares issued to Ardagh (that vest at higher prices over time) waters down returns a bit, but agree in general
Excellent analysis, thank you! Holding my SPAC shares rather than flipping, as there's a place in my portfolio for this business long-term.
Definitely an interesting idea. BLL and CCK are in a solid oligopoly business.
The Investment Doctor profile picture
@knoxmarlow Indeed! And all three oligopolists will have enough demand to cater to with the anticipated demand increase of 100 billion cans per year in 2025.

I recently reviewed CCK as well. Perhaps that would be of interest: seekingalpha.com/...
@The Investment Doctor thanks for highlighting CCK. One of my bigger positions and I ignore it between reports. But I need to check in and see what they are doing with the packaging business after the "strategic review."
@The Investment Doctor CCK had a killer Q1. And they sold European Food; I didn't catch the multiple, but the Board must have been happy with $2.7 billion (minus $100 million in tax expense).

Have you heard anything about the SPAC approval process? I own a small position in GRSV; but I'm not sure if I purchased in time to vote. I'm looking to add to the position. I couldn't find any investor relations documents; unlike my experience with other SPACs that I have owned.

Also, seems like ARD should be reporting next week. I wonder how ARD compares to GRSV from a valuation perspective; it is monetizing 20% of the business at a solid valuation and retaining 80% of the business. But perhaps not 40, 50, 60% upside like the SPAC.
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