Global packaging merger and acquisition (M&A) deals are looking to rebound from the last few years, says the latest issue of the Packaging Perspectives report, from Chicago-based Mesirow Financial.
M&A volume surged in H1 2019, reaching its highest level since 2015. In line with volume, deal value climbed to $15.0 billion in H1 2019, compared to $9.7 billion in H1 2017 and $12.5 billion in H1 2018 (see bar chart above).
Factors and prominence of e-commerce, specifically Amazon and its positively impacting the packaging sector include the rise of ship-in-own container initiative, as well as flexible packaging becoming more prevalent in the pharmaceuticals and food sectors, are the two areas notably recession-resistant. The average multiple of publicly traded plastic-packaging companies reached 11.6x, the highest point of this decade. The average multiple of publicly traded paper-packaging companies decreased to 7.7x, largely driven by the corrugated industry, which experienced a simultaneous increase in containerboard capacity and decline in containerboard pricing.
Despite fears of a recession due to the unprecedented length of the current Bull Market, Mesirow does not see any immediate issues that will negatively impact the market for the remainder of this year and into 2020. The Federal Reserve’s recent interest rate cut has both dramatically changed the overall outlook for financial markets and the global economy, instilling confidence in the M&A market.
The packaging sector continues to see increased investments from public companies and private equity, with valuation levels nearing all-time highs, says the report.
The flexible-packaging converting sector continued its strong growth trajectory in H1 2019 mainly due to increased technological advancements as well as convenience and customization efforts, making flexible packaging preferable to more consumer products than they were historically. M&A activity within the flexible-packaging field to date in 2019 has proven that the large industry participants are willing and able to pay premiums for the industry’s niche companies to broaden their capabilities and expand product offerings and geographic reach.
While large acquisitions, such as Amcor’s June 2019 purchase of Bemis Co., grab headlines, private equity-backed flexible-packaging converters are driving deal volume. C-P Flexible Packaging, PPC Flexible Packaging and ProAmpac, all private equity-backed, are actively pursuing buy-and-build strategies. Relative to the other forms of packaging, flexible may have the most growth potential due to the value it adds in reducing food waste, extending shelf life and decreasing shipping costs.
With continued digitalization of labeling and printing, added regulations that require greater product disclosure, and increasing need for product differentiation, the label industry experienced healthy growth in H1 2019, says the report. Brands are increasing promotional activity, which shortens the life cycle of packaging, particularly for elements such as labels. H1 2019 also saw one of the largest label M&A deals in recent years, with the “take-private” acquisition of Multi-Color Corp. by WS Packaging, backed by Platinum Equity, for $2.5 billion. As seen with flex packs, private equity-backed companies are taking a larger share of the M&A market in labels, as well as pushing multiples higher.
Overall, H1 2019 has seen increased deal volumes and premiums being paid by both strategic and private-equity acquirers in an effort to consolidate core businesses and diversify product offerings in labeling.
Heading into H2 2019, concerns over a potential market correction remain; however, ambiguity isn’t necessarily a bad thing for M&A markets, specifically in the packaging sector, the report predicts. Mesirow expects trends such as increased deal activity and robust valuations to continue as acquirers face challenges in organically growing top-line results and seek ways to drive growth through acquisitions.
In the packaging industry, end-use markets such as food and beverage and pharmaceuticals tend to be recession-resistant as well, adding to the confidence of the already dynamic M&A market. Look for sustained M&A activity in packaging manufacturing, driven by strong liquidity and the continued activity of large participants consolidating core businesses in an increased effort to return capital and become more efficient.
More info: www.mesirowfinancial.com/investmentbanking