One concept was clear at this week’s AWA Mergers & Acquisitions Executive Forum in Chicago: Private-equity firms love to invest in the labeling and packaging field. One presentation, given by Jonathan White, managing director of Mazzone & Associates, Inc., a private-equity investment advisory firm, provided a good overview of the reasons why.
Here are some Converting Curmudgeon
summary bullet points:
- Flexible packaging, paperboard and label converters are consistently resistant to economic downturns. The median annual growth for these businesses was 4.5% since 1999; they fell negative in the past 20 years only during The Great Recession and in 2015.
- They consistently perform well with median margins averaging 13.4% a year since 2004. Margins were over 14% last year and in the first-half of 2019 so far.
- As localized businesses, individual packaging manufacturers and label printers are well insulated from overseas competition. It simply costs too much to ship their relatively low-value goods long distances.
- The US packaging-converting field can more easily meet sustainability regulations, and post-consumer recycled-content measures than most overseas operations. Acquirers such as Wellspring Capital, Long Falls, Arsenal Capital Partners, and Stonehenge Partners have looked at targets shifting away from plastics to paper and bio-based materials or to recycled plastics.
- Packaging offers a broad range of potential business strategies. Private-equity M&As now have channels buying unrelated businesses in digital printing, e-commerce, and sustainability. Some examples include Siris Capital Group buying EFI, Skion acquiring Landa, and ePac Flexible Packaging purchasing Precision Pouches.
- Packaging businesses make good use of economies of scale by consolidating their operations. Flexibles dominated mergers in 2018 with 37% of all packaging consolidating transactions, followed by paper-based converters
White listed some of the shared success factors of most packaging and labeling M&As:
- Pick your space and stick to it; merge flexibles with other flexibles, p-s labels with sleeve labels.
- Avoid fights with the behemoth packaging-converting giants. The Big Guys are consolidating into even bigger guys, while the middle guys are consolidating into bigger middle guys. You need to be >$100 million in annual revenue to even be noticed by the Big Guys for a merger.
- Manage your commodities and their pricing, and play the market trends.
- And avoid a “one upmanship” strategy of always trying to do your competition one better just because you can.