Global Packaging M&A activity finished the decade with another strong year totaling 289 transactions in 2019, which represents a continuation of elevated levels experienced over the last four years. In the second half of 2019, we saw a sharp increase in private equity add-on activity which was offset by a sizable decline in the number of deals completed by strategic buyers. Private equity investment in the packaging industry continues to grow and 2019 represents the second year in a row where private equity transactions have increased while strategic buyer activity has declined. Many private equity owned packaging companies have been aggressively pursuing “buy-and-build” strategies where add-on acquisitions are a key tenet to supplement organic growth and bolster profitability. These companies clearly took share from strategic buyers in the second half of 2019 and have increased the overall competition for quality packaging transactions. Private equity platform deal volume was relatively consistent with last year driven by both investment in new platforms as well as private equity selling to private equity, a trend we expect to increase over the next few years. The overall percentage of deals completed by private equity (platform and add-on) comprised ~47% of total transactions in 2019, up significantly from an average of 37% from 2016 – 2018.
Other key trends in 2019 packaging M&A activity include:
- Increase in negative consumer sentiment towards single-use packaging, which is forcing companies to look for innovative ways to design products and packaging that are recyclable and leverage higher-levels of recycled content. Some paper-based packaging companies are benefitting from this trend
- Publicly traded packaging companies experienced strong performance in 2019 with valuation multiples remaining relatively consistent with first half 2019. Paper Packaging ended up being the second highest performing segment after being negative through the first half of 2019
- Debt financing for packaging M&A continues to be favorable which continues to support high valuations and is helping private equity buyers compete and win against strategic buyers
- Packaging M&A multiples (EV/EBITDA) remained elevated, finishing at similar levels as first half 2019 and full year 2018. High multiples continue to be a strong motivator for sellers to explore transactions
Overall, 2019 was a solid year for packaging M&A with the second half largely being a continuation of positive trends experienced in the first half of the year. The dramatic shift in transaction activity from strategic buyers to private equity add-on was not unexpected given the increased level of private equity investment in packaging. PMCF expects elevated levels of packaging M&A activity to continue in 2020 based on the current economic environment, elevated multiples, and the high levels of interest by both strategic and financial buyers. There are number of uncertainties that could cause a softening in packaging M&A activity but the positives seem to outweigh any negatives currently on the horizon.