M&A drivers

Compared with 2015, which was a record-setting year for global packaging mergers and acquisitions (M&A), 2016 has been more subdued. At the half year, the market was on course for around 25 percent to 30 percent lower value than 2015.

There were some particularly big deals in 2015, such as Ball Packaging taking over Rexam, Owens Illinois acquiring Vitro, Apollo buying out Verallia, and the MeadWestvaco-RockTenn merger. Against any other benchmark, 2016 will be a good year for packaging M&A, probably approaching a value of 25-30 billion USD globally.

The stand out segment in 2016 has been flexible packaging. The headline deals have been Egeria buying out Clondalkin Flexibles from Warburg Pincus, RPC Group taking over Europe’s leading polyethylene film producer, British Polythene Industries, Berry Plastics bidding for AEP Industries, Lindsay Goldberg’s buy-out of Schur Flexibles, Pritzker Group buying ProAmpac, Novolex taking over Heritage Bag, and Amcor acquiring Alusa of Chile for 435 million USD. These seven deals are all in the several hundred million dollar range, which adds up to a significant aggregate enterprise value.

The key drivers here are the high growth of flexible packaging, the differentiation and added value – which can build strong customer relationships and margins, and the innovation which is still leading to substitution from other packaging formats. It is one segment which benefits particularly well from many ongoing trends, like demographics and social changes such as more food consumed on-the-go, often involving more and smaller packs. Flexible packaging is not bulky and works well in the convenience market.

Label sector

In the label sector, due to the fragmented nature of the industry, the acquisitions tend to be smaller. The most notable deal is arguably the acquisition by CCL Industries of Checkpoint Systems for 433 million USD.

This was a particularly interesting transaction as it highlights the scope for value-added services with labels at the nucleus. CCL is the key international acquirer of labels businesses and, unlike other packaging companies of its scale, it makes some fairly modest acquisitions in the 10-50 million USD range. Two other notable deals in the labels sector were Platinum Equity’s sale of Mactac in two parts; the European business

to Avery Dennison for 200 million USD and Mactac Americas to Lintec for 375 million USD. Also, Private Equity house Advent International replaced KRG Capital Partners as majority investor in Madison Dearborn.

The other interesting facet of M&A of packaging businesses is valuations. M&A is normally looked at on the basis of enterprise value to EBITDA multiples. Although deal volumes are down the multiples are averaging out at almost the same levels as 2015. This is good news for vendors and the multiples continue to be some way above the long-term trend levels.

How long this will last is difficult to predict, but it may prove to be that 2015 was the top of the market. One influence on M&A multiples is the EV/EBITDA ratios of public packaging companies. PLCs will tend to limit what they will offer for a business to less than their own trading multiple and even in private buyer transactions counterparties tend to mark-to-market. The PLC multiples are also a little down on the 2015 levels. Of course, in any given year the deals being analyzed are different from.

This opinion article featured in the L&L Yearbook 2017, which is avalable to read online here