Global Packaging M&A activity was impacted significantly by COVID-19 in 2020 with only 234 total deals announced or completed, representing the lowest level of Packaging M&A activity in the last six years. Transaction activity decreased for all buyer types, with strategic acquirers experiencing the strongest decline at 26 deals, or 17%. Buyer mix remained mostly unchanged as strategic transactions increased by 1% of total buyer mix. Private equity buyers, including add-on and platform transactions, accounted for 45% of transaction activity collectively.
Despite COVID-19, strategic buyers, including private equity backed portfolio companies, continue to look for M&A opportunities to drive top-line growth, gain new technologies, and expand offerings. These growth initiatives along with transaction synergies have supported a continuation of elevated valuation multiples, which represented 9.1x EV/EBITDA through 2020. While the timing of a full recovery of M&A from COVID is still uncertain we believe the resilience of EBITDA multiples for high quality packaging businesses will continue to be helpful.
Other key trends in 2020 packaging M&A activity include:
- Publicly traded packaging companies experienced rapid declines in market valuations through Q1 2020 due to market uncertainty linked to the COVID-19 pandemic. Market valuations have since re-stabilized and all packaging indexes tracked by PMCF reached all-time highs at the end of 2020
- Private equity firms experienced lower deal volumes and aggregate values through 1H 2020 compared to the same period in 2019 due to uncertainties related to COVID-19 and private equity’s reliance on new financing for successful closings. The number of announced deals was higher in 2H 2020 which signals the beginning of a recovery to pre-COVID levels by year-end
- Deal activity in Rigid Plastic Packaging is down by 20 deals compared to 2019 levels driven by declines in private equity platform and add-on transactions. Flexible Plastic Packaging was the most affected sector as deals were down 46% over 2019 levels due to depressed levels of both private equity and strategic transactions. Paper and Other Packaging sectors were the least affected from a volume perspective although they remain suppressed compared to historical transaction activity
2020 was a suppressed year for Packaging M&A activity although recent monthly trends in Q3 and Q4 are indicating a recovery from the low deal activity seen in Q2. The timing of a full recovery is still uncertain but we have been encouraged by the level of activity over the last few months including several notable transactions. Despite the general underperformance observed during the year, PMCF is optimistic heading into 2021 as both buyers and sellers have become more comfortable operating in the current deal environment. As indicated by overall valuation levels and buyer interest in achieving value-added growth through M&A, differentiated packaging companies remain attractive acquisition targets despite COVID-19 related challenges.
