Packaging M&A Pulse – 2016 Year in Review

Packaging M&A activity in 2016 paced with 2015’s high water mark of deal making for much of the year up to Q4. Whereas Q4 2015 ended up being the low point for that year, Q4 2016 reflected a steady interest level in the sector and supported the year’s total in far exceeding 2015 overall. 2016 packaging M&A reached 294 transactions which reflects a 9% increase over 2015’s 269 total deals. With this level of activity completed, 2016 now reflects a 5th year of stable or increasing M&A in the packaging sector.

While strategic buyers and new private equity platforms both reflected flat or modest increases in deal count, private equity add-ons were up significantly. The over 60% change in these transactions should not come as a surprise given the historical M&A trends for packaging businesses. Private equity had a dominate year in 2014, when new platforms increased 70% versus the prior year, and these new investments are often most acquisitive in their first 1 to 3 years of ownership. An elevated level of add-on acquisitions could be expected to continue in 2017 as well.

Deal trends across packaging material types generally reflected the overall increase in activity. There was a 15% decline noted in rigid plastic packaging, reflective in part of the more limited supply of targets created by historical consolidation, and 2015’s very robust level of activity. However, rigid’s more normalized deal level was mostly offset by the 17% increase in the fragmented flexible space. Paper packaging also continues to be highly targeted by aggressive buyers, and accordingly, deal activity reflected a 13% increase. Across other packaging types both metal and distribution each increased by 10 deals as buyers sought to create synergies or achieve higher growth results.

A number of marquee transactions took place in the fourth quarter of 2016 among both strategic and private equity buyers. Within flexible packaging, CCL Industries (TSX:CCL.B) acquired Innovia Group for $844 million (7.3x EBITDA), Pritzker Group acquired ProAmpac, and The Carlyle Group acquired Novolex. RPC Group (LSE:RPC) made a number of sizable acquisitions in the rigid plastic packaging segment, including Astrapak Limited (JSE:APK) for $96 million (10.0x EBITDA) and Plastiape S.p.A. for $159 million, demonstrating their aggressive leadership in the space.

Key strategic players in paper packaging drove M&A activity, including Packaging Corporation of America’s (NYSE:PKG) acquisition of Columbus Container for $100 million, Mondi Group’s (LSE:MNDI) acquisition of Beepack for $46 million (6.1x EBITDA), and Smurfit Kappa’s (ISE:SK3) acquisition of Saxon Packaging. A number of $1 billion+ transactions were also noted. Leading North American packaging distributor TricorBraun was reacquired by AEA Investors and CVC Capital Partners, in partnership with European glass manufacturer BA Glass, acquired Anchor Glass Container Corporation for $1 billion.

In line with the record level of buyer interest in packaging valuations have also remained at very robust levels. 2016’s average EV/EBITDA transaction pricing of 8.0x was consistent with 2015, which was a multi-year high point. These attractive valuation levels for sellers need to be considered alongside current market conditions including the completed election and a healthy economic environment. Given these factors, PMCF currently expects 2017 to support attractive valuation levels for sellers and a continued healthy interest in packaging M&A.