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Why private-equity investors love the packaging sector

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, 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 busineses make good use of economies of scale by consolidating their operations. Flexibles dominated mergers in 2018 with 37% of all consolidating transactions, followed by paper-based converters at 29%.

 
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.

Read more: Why private-equity investors love the packaging sector


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