Coats Group plc (LON: COA), the FTSE 250-listed industrial thread and performance materials specialist, has signed a definitive agreement to acquire OrthoLite Holdings LLC for an enterprise value of $770 million. Expected to close in the fourth quarter of 2025, the deal marks a significant step in Coats Group’s strategy to position itself as a “super tier 2” supplier in the global footwear components market. OrthoLite, a US-based pioneer in open-cell foam insole technology, supplies premium insoles to more than 550 footwear brands, with an annual production capacity exceeding 500 million units. The acquisition also includes OrthoLite’s proprietary Cirql biodegradable and recyclable foam technology, which targets the fast-growing midsole market.
Founded in 1997, OrthoLite commands nearly 36 percent of the open-cell foam insole market and operates 14 production facilities worldwide. Coats Group, which reported $1.4 billion in revenue in 2024, sees OrthoLite as a highly complementary fit for its footwear business, adding sustainability-focused innovations and expanding its customer reach among global footwear brands.
What strategic advantages does Coats Group gain by integrating OrthoLite into its footwear materials division?
Coats Group expects the OrthoLite acquisition to accelerate its transformation from a thread and structural components manufacturer to a diversified footwear materials powerhouse. The enlarged division is projected to deliver approximately $700 million in pro-forma revenues based on 2024 figures, strengthening Coats Group’s positioning as a key supplier to premium and sports footwear manufacturers. By combining OrthoLite’s insole expertise with Coats Group’s existing portfolio—spanning yarns, fabrics, and structural components—the group aims to unlock cross-selling opportunities and improve margins across multiple footwear segments.
Institutional investors have responded positively to the deal, highlighting OrthoLite’s strong financial track record and sustainability credentials as factors that support long-term value creation. Analysts noted that OrthoLite’s focus on innovation, particularly in sustainable materials, aligns well with the increasing ESG requirements of global brands, giving Coats Group a competitive advantage in winning high-value contracts.
How is Coats Group funding the $770m acquisition, and what is the expected impact on leverage and cash flow?
To finance the acquisition, Coats Group has secured approximately £250 million through an equity placing priced at 77 pence per share, representing nearly 20 percent of its issued share capital. The remaining consideration will be met through debt facilities. Post-acquisition, Coats Group expects its net leverage to increase to about 2.2x EBITDA by December 2025 but aims to reduce it to below 2.0x by the end of 2026.
As of its half-year results for 30 June 2025, Coats Group reported net debt of $430 million, equivalent to a 1.4x net debt-to-EBITDA ratio, supported by a solid operating cash conversion rate. Free cash flow stood at $54 million in the first half, and the group raised its interim dividend by 8 percent to 1.0 US cent per share, reflecting confidence in future earnings despite the temporary rise in leverage.
Are the deal valuation and synergy targets attractive for investors looking at long-term returns?
Coats Group is acquiring OrthoLite at an initial 10.0x EV/EBITDA multiple, which analysts consider reasonable compared to similar transactions in the footwear materials sector. Factoring in expected annual synergies of $20 million by 2028, the effective multiple falls below 8.0x. These synergies will be driven primarily by cost efficiencies, supply chain consolidation, and integrated sales channels across OrthoLite and Coats Group’s existing operations.
Institutional investors have expressed optimism that the deal will be earnings-accretive in the first full year after closing. Analysts forecast EBIT margin expansion of around 200 basis points by 2028, with return on invested capital expected to surpass the weighted average cost of capital over the same period. OrthoLite’s consistent 26–28 percent EBITDA margins and over 90 percent operating cash conversion provide a solid foundation for these projections.
What role will OrthoLite’s sustainability focus play in Coats Group’s future growth strategy?
Sustainability has been central to Coats Group’s strategy, and OrthoLite’s proprietary Cirql technology adds a strong environmental dimension to its product offerings. Cirql is an industrially compostable and fully recyclable midsole foam, which has already generated interest among performance footwear brands seeking eco-friendly solutions. Coats Group’s existing commitments to the UN Global Compact and its net-zero target by 2050 are expected to benefit from this addition, helping the group capture market share in the growing sustainable materials segment.
With global regulators and consumers increasingly demanding environmentally responsible materials, the acquisition gives Coats Group a significant first-mover advantage in sustainable footwear components. The integration of Cirql into its product line-up is expected to drive further growth in high-margin categories over the next three years.
How does this deal build on Coats Group’s previous M&A track record in the footwear sector?
The OrthoLite acquisition follows Coats Group’s earlier purchases of Texon and Rhenoflex in 2022, both of which were successfully integrated into its footwear operations. This prior experience is expected to reduce execution risks and facilitate the realization of identified synergies. Analysts believe the acquisition strengthens Coats Group’s ability to scale its footwear materials business globally, positioning it as a critical partner for large footwear brands seeking integrated solutions.
The group’s proven ability to integrate acquired businesses while maintaining cost discipline and delivering on synergy targets has reassured investors that the OrthoLite deal is likely to replicate the success of these previous transactions.
What does the acquisition mean for Coats Group’s interim performance and future outlook?
Coats Group’s interim results for the first half of 2025 showed revenue growth of 2 percent year on year to $705 million, supported by steady performance in apparel and sustainable materials. Adjusted EBIT margin improved to 19.8 percent, while basic earnings per share rose 4 percent to 4.7 US cents. The company expects the OrthoLite acquisition to enhance both revenue and margin growth, with full earnings accretion anticipated in the first full year after closing.
Management has maintained its full-year guidance despite macroeconomic uncertainty, citing strong demand for sustainable materials and resilience in its footwear and performance materials segments. Analysts expect further updates on synergy delivery and Cirql’s commercial rollout in 2026, with earnings growth projected to accelerate as the integration progresses.
How is OrthoLite expected to perform under Coats Group’s ownership post-acquisition?
Under Coats Group’s ownership, OrthoLite will be fully integrated into the footwear division by early 2026. The focus will be on leveraging Coats Group’s global supply chain to expand OrthoLite’s reach, accelerating Cirql’s adoption in midsoles, and delivering cost efficiencies. Break-even for Cirql is targeted by 2026, and analysts expect the new combined footwear division to capture increasing orders from premium and athletic footwear manufacturers seeking innovative, sustainable solutions.
Institutional sentiment remains broadly positive, with investors pointing to Coats Group’s disciplined leverage approach and proven track record in M&A integration as key factors supporting long-term value creation.
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