The first half of 2018 has seen continued high levels of mergers and acquisitions in the packaging industry with 183 transactions completed in the first half of the year according to data from Alantra, the global investment banking and asset management firm. This follows a record year for packaging deals in 2017. The growth of the global economy has provided a positive backdrop, while macro trends including the rise of on the go food packaging, sustainable packaging and online retail has offered businesses expansion and new market opportunities.
Mark Wilson, a partner in the UK advisory business of Alantra and a leading adviser to the packaging sector, said: ‘The high valuations paid by strategic buyers for market leading assets will not abate any time soon. Vendors will, however, need to consider very carefully how they can maximise value from a sale process, especially when their business spans diverse products, geographies and end markets. We are seeing an increasing trend whereby standalone divisions in multi-site groups are sold to completely different acquirers.’
Mark has identified the following significant deals and market drivers that have positively impacted mergers and acquisitions activity in the packaging industry during the first half of 2018.
Top three European cardboard manufacturers continue to consolidate
There has been substantial consolidation
in the paper and board market in H1 2018, with the largest three players in Europe all reinforcing their positions. DS Smith acquired Europac in Spain for €1.7 billion at a 10x EBITDA multiple, Smurfit Kappa acquired Reparenco in the Netherlands for €460 million, and Saica acquired Emin Leydier in France. While European companies have historically struggled to win auction processes in the US, DS Smith successfully acquired Corrugated Container Corporation, a US recycled paper packaging manufacturer. US players are looking to Europe for expansion, with International Paper making an ultimately unsuccessful €8.6 billion bid for Smurfit Kappa.
Flexible packaging – parts more valuable than the whole?
Investors are increasingly considering separate sale processes for different business segments. The lack of synergies within the flexible packaging industry due to localised supply, a lack of pan regional sales opportunities or variation in products and technology can impact economies of scale. As a result, maximising returns through the sale of standalone assets is becoming a more viable strategy. The break up of Coveris by investor Sun Capital is
a key example: Coveris Americas, acquired by Transcontinental in a transformative $1.3 billion acquisition in April 2018, Coveris Rigids and Coveris Flexibles Europe (rumoured to be further split between the UK and continental Europe) are all separately run processes. Similarly, Egeria’s Clondalkin business has been shedding non core assets in separate sales, including its Florida business to ProAmpac last year and its European confectionary and tea businesses to Schur Flexibles in February 2018.
Platform acquisitions continue
Platform acquisitions by private equity investors continue to be popular due to the packaging industry’s stability and non cyclical nature. Strong returns have ensured reinvestment by private equity firms which have previously exited the market. Platinum Capital, formerly involved with Contego, MacTac and Bway, as well as equipment supplier Husky, have re-entered the market with the $360 million acquisition of WS Packaging from JW Childs.
Packaging niches in favour with private equity
Private equity is showing strong interest in packaging businesses operating in niche, but growing and stable market sub segments. The PET bottle market, with predictable bottom lines and growth opportunities through long term macro trends such as the increased consumption of bottled water, is seeing strong mergers and acquisitions activity. PE investors such as GED (acquisition of Envases Soplados in Spain), Nexus (Intercorp’s bolt-on acquisition of Sinea in Peru), Progressio SGR (Garda Plast’s bolt-on acquisition of IFAP in Italy) and DeA Capital (CDS’s bolt-on acquisition of Inplast in Italy) have all been active in the market in H1 2018, demonstrating the value to investors of a market that has consolidation potential.