The paper and packaging industry have witnessed a significant surge in merger and acquisition (M&A) activity, with over 2,000 transactions since 2007.
What’s making all this happen? Well, it’s a mix of strong markets and a smart playbook for creating value. In this report, we’ll take a closer look at what’s driving this activity and how companies are changing with the times.
Why is this happening?
The paper and packaging world have been on a shopping spree! Over the last ten years, it’s seen twice as many M&A deals compared to the bigger manufacturing industry.
This flurry of deals comes from two kinds of players. There are the companies that already work with paper and packaging, and they’re filling gaps in their businesses. Then, there are private equity (PE) players from the outside, coming in and creating new value with their acquisitions.
In the past, the name of the game was ‘multiple expansion.’ That’s when a company sells what it bought at a much higher price than it bought it for. But times are changing, and companies can’t rely on this anymore.
Now, the name of the game is ‘revenue growth,’ ‘margin expansion,’ and ‘free cash flow generation.’ That’s where the real value is.
What’s keeping things rolling?
So, what’s pushing all these deals? Well, some markets in paper and packaging are like superheroes. They stay strong even when times are tough.
Markets like packaged food, home care, and pharmaceuticals have been super resilient, even during the 2008-2009 global financial crisis and the 2020 Covid-19 pandemic. This superhero strength has led to even more M&A activity and interest from private equity.
How value is made
In the past, making more money by expanding margins wasn’t a big deal. But now, it’s becoming super important. To do this, companies need to keep getting better, even when things like inflation try to slow them down.
They can do this by finding better ways to price their products, coming up with new ideas, and choosing the right mix of products. They also need to be experts in buying stuff and running their machines without any hiccups.
Creating value through growing revenues is also a big deal now. Companies are buying smaller companies and helping them do better so they can grab a bigger piece of the market.
Some big players are looking for companies that can help them be more eco-friendly and make cooler packaging to stand out from the crowd. The good news is that the packaging market still has a lot of room for growth.
There are lots of small to mid-sized players that can join forces and become giants in the industry.
Different kinds of strategies
Companies use different strategies based on what they want. Some want to make more money in their existing businesses or try their luck in new places. These companies are looking for “scale deals.”
Other companies want to step into new businesses or grab hold of new technologies. These are “scope deals.” Lately, we’ve been seeing more “hybrid deals” that mix both scale and scope. These deals may seem a bit complicated at first, but they can open doors to exciting new opportunities.
In a nutshell, the paper and packaging world is alive with M&A deals, thanks to strong markets and clever strategies. Companies that can adapt to these changes and focus on boosting margins, growing revenues, and making smart deals will be the stars in this exciting industry.
