- The total market capitalization of all stock markets around the globe currently hovers at around $70 trillion. It has been the near steady growth of public market capitalizations over the last several years that has been a significant driver of the current M&A boom.
- This healthy stock market environment has rewarded CEOs who have successfully executed M&A strategies to achieve growth. The packaging industry in particular is replete with public companies that have skillfully used M&A as a growth strategy – including WestRock, International Paper, Amcor, Bemis, Transcontinental, Packaging Corp. of America, Berry Plastics, Graphic Packaging, Multi Packaging Solutions and RPC Group, among others.
- The increasing value of public stock markets has also positively influenced the private-equity world. Institutional investors that have seen their overall portfolios rise in value continue to allocate funds into private equity due to its superior performance. In fact, private equity has outperformed other major asset classes, such as real estate and fixed income.
- The impact of increasing public company valuations in the packaging industry are obviously a reward for a job well done (the carrot), but they also set an expectation for future growth that can be difficult to achieve in a low-growth world (the stick). This environment clearly contributes to a focus on strategic M&A to meet growth objectives.
- The corrugated industry in 2016 provided an excellent example of using M&A to accomplish corporate goals. Over the last several years, the industry has effectively used M&A to improve industry structure and boost industry performance, all amid a low-growth environment.
- For sellers of packaging businesses, 2016 was an excellent year as these transactions reached a level not seen since before the financial crisis. As rate of return expectations come down due to lower interest rates, valuations and prices move up, and ultimately sellers benefit.
- Outlook for 2017: It is difficult to imagine a better environment for M&A than what is happening now. All major factors – interest rates, debt environments, public stock valuations, private-equity dry powder and general economic conditions – are signaling green lights. Packaging will undoubtedly remain a favored industry from the perspective of private-equity investors. Strategic buyers will continue their proven ability to create value with well-executed packaging M&As. Finally, it appears that tax rates might move down as well – a strong environment for sellers, indeed.
More info: https://www.mesirowfinancial.com/markets/cmib/investment-banking/