M&A activity in the packaging industry continued to be strong in 2018 with total deal volume of 296 transactions on a global basis. Compared to a multi-year high in 2017 (which represented the highest level packaging M&A activity since PMCF began tracking), transactions in 2018 declined 10 deals or -3%. This decline was primarily attributable to lower activity in Q3 2018 which had 13 fewer transactions compared to the same time period in 2017. Despite the slight pullback in total number of transactions, PMCF’s proprietary industry research showed a healthy mix of both strategic buyer and private equity activity and a number of marquee packaging transactions.
Historically, packaging M&A activity has been heavily weighted towards strategic buyers, which has represented ~65% of total transactions over the last 5 years. In 2018, PMCF noted a shift towards private equity which recorded the highest share of total plastics and packaging transactions since PMCF began tracking data in the sector (7+ years). This shift was primarily a result of a modest increase the total number of private equity transactions (4.5%) coupled with a significant decline in strategic buyer transactions (-7.7%). In reviewing all of the sector data and in its regular course of business executing M&A transactions in the packaging industry, PMCF did not notice fewer strategic buyers or a pullback in interest level. PMCF did note growth in the number of private equity platforms and highly competitive bidding on fewer quality packaging company transactions.
Key trends in 2018 packaging M&A activity include the following:
- Rigid Packaging experienced a slight decline in deal volume in 2018, while still remaining on the high end of historical averages, driven by an increase in activity involving blow molded packaging
- Flexible Packaging had another strong year with 55 transactions, a ~4% increase over 2017, attributable to an increase in activity in the Industrial and Consumer end markets
- Paper Packaging declined to a 3-year low, which PMCF believes can be attributed to high levels of historical consolidation and a lack of available sellers
- Other Packaging, which includes Machinery/Equipment, Metal, Distribution, and Glass, recorded a multi-year high with 56 transactions. While strategic buyers represent the majority of this packaging sub-sector, private equity buyers have increased activity, specifically for deals involving Machinery & Equipment
Based on current data and trends, M&A activity in the packaging industry is expected to remain strong in 2019. Transaction multiples across many of the industry sectors don’t appear to show any signs of retreating from elevated/peak levels which should continue to prompt “sellers” to explore company sales. PMCF continues to see a supply/demand imbalance between buyers and sellers, particularly with the increased private equity interest and investment. This imbalance coupled with strong credit markets and a large amount of buyer capital overall should help these seller favorable conditions to continue. The question is how long will this prolonged M&A market run for sellers last. Many thought it would subside by now and there are certainly some signs of potential future challenges including stock volatility, global trade, and political uncertainty. Right now and at least for the short term, the positives seem to outweigh the negatives.