The packaging sector continued to experience healthy transaction volume through the first half of 2016, ignoring a volatile stock market and the Brexit vote, while also outperforming a slow start in the broader M&A market. With the exception of a declining trend in the rigid plastic packaging segment, which was met with a nearly equal increase in paper packaging, the industry experienced deal flow consistent with the robust activity in the comparable 2015 period. In total, the first half of 2016 resulted in 146 packaging transactions compared with 147 in the first half of 2015.
H1 2015 and H1 2016 reflected very similar trends with regard to total deal volume and buyer mix. Strategic buyers were the most active with 70% of acquisitions, while private equity add-on activity remained flat, and new private equity platform investments experienced some decline. PMCF believes both private equity and strategic buyers remain well positioned and eager to complete acquisitions.
Historically elevated valuation levels were sustained through the first half of 2016, with H1 2016 year-to-date average EV/EBITDA multiples of approximately 8.0x. Year-to-date average EV/EBITDA multiples appear to reflect a continuation of the valuations experienced in 2014 and 2015 which PMCF categorizes as “seller’s market” conditions. For publicly traded entities the average EV / EBITDA was 9.4x at the close of H1 2015 versus 9.3x at the close of H1 2016 reflecting a fairly flat one year trend.
The strength of the first half of 2016 was also reflected via several transactions that surpassed the $1 billion mark. Investment firm Stone Canyon Industries acquired diversified packaging platform BWAY Company from Platinum Equity for $2.4 billion. Ball Corporation (NYSE:BLL) completed its $8.4 billion acquisition of Rexam plc, and subsequent divestiture of metal packaging assets to Ardagh Group for $3.4 billion. KION Group (XTRA:KGX) purchased diversified machinery/equipment business Dematic Group for $2.1 billion.
The middle market also saw marquee consolidation activity with Amcor Limited’s (ASX:AMC) $435 million acquisition of food and beverage focused flexible packaging manufacturer Alusa. RPC Group (LSE:RPC) added flexible packaging capabilities to its rigid packaging platform via the $372 million acquisition of British Polythene Industries (LSE:BPI). Additionally, CCL Industries (TSX:CCL.B) completed its acquisition of label converter Checkpoint Systems, Inc for $433 million.
Looking forward, we must note some slowdown in the broader M&A market, global political events such as Brexit, and the extended length of the current, robust cycle. However, we continue to see strong buyer interest in packaging companies driven by a desire to create inorganic growth, capture synergies, and put idle capital to work. Given current market conditions, PMCF expects elevated valuation levels to continue for the remainder of 2016 and early part of 2017 for quality packaging businesses. Our outlook for the M&A market in the second half of 2017 is less certain at this time.