Packaging M&A Pulse – H1 2017

H1 2017 M&A packaging volume totaled 158 transactions, up 12 deals (or 8%) versus the 146 recorded in H1 2016. As background, 2016 reflected the already record high levels of interest in packaging reach new heights as deal volume increased by 9% over 2015. With H1 2017’s robust activity, M&A momentum in the packaging sector is poised for a 6th year of increased deal making and the extension of an already long growth cycle.

Notable trends supporting and driving the increase in activity included highly aggressive buying activity from private equity. Versus H1 2016 these investors completed 13 more deals (a 30% increase) in H1 2017 which included a substantially higher number of add-on acquisitions to existing platforms reflecting their value creation blueprint of “buy and build.” Within the private equity trend was the presence of several top tier private equity and Wall Street brand name investors who made headline worthy entrances into the segment. This included Goldman Sachs, Morgan Stanley, Leonard Green & Partners, Warburg Pincus, and Advent International who all made billion dollar or greater recent investments in packaging organizations.

In addition to increased private equity and their large transactions, strategic mega deals were also an important trend for the first two quarters of the year. Not to be outdone by the billion dollar private equity deal makers noted above, strategic parties (primarily public companies) including WestRock, Silgan, Loews, and DS Smith all demonstrated their ability to close some of the largest packaging transactions in the year to date. The ability of both strategic and financial parties to complete these very large deals directly reflects their ample cash on hand and more importantly the extended window of highly available, low cost debt.

While packaging M&A increased overall, rigid plastic packaging sharply increased by 12 transactions (up 44% vs H1 2017), surpassing flexible packaging, to be the second largest segment for deal making. This was driven by an increase in both industrial packaging and several noteworthy thermoforming deals for food and consumer applications. Flexible packaging was only slightly down, while paper packaging transactions declined approximately 12%. The change in paper deals is likely only a timing factor as buyer interest and pricing in this segment remain highly elevated.

Pricing for sellers has been very favorable and has trended higher than the already elevated levels recorded in 2015 and 2016. The drivers include an increase in private equity, buyers with ample cash and available low cost leverage who exceed willing sellers, strategic buyers seeking growth and synergies via M&A, and for public buyers strong stock valuations. Notable deals reflecting this current pricing include BWAY’s purchase of Mauser for 10.5x EBITDA, RPC’s acquisition of Letica for 11.2x EBITDA, and WestRock’s acquisition of Multi Packaging for 10.5x EBITDA.

The outlook for packaging M&A remains positive for 2017 supported by the segment’s long term stability through economic cycles, large and growing platforms seeking acquisitions, increased focus from private equity, and pricing levels which are encouraging even stubborn sellers to consider a sale and avoid “missing the window.” Longer term, buyers and sellers need to consider the extended length of the current cycle into their strategy and planning as it will eventually revert.