Packaging M&A activity remained at elevated levels during the first half of 2019, with 152 deals. These levels represent a slight decline from H1 2018, which had 158 deals. Strategic buyer activity remained relatively constant, while private equity activity had a minor decline overall. Within the private equity category, an increase in add-on acquisitions was not enough to offset lower deal activity from platform acquisitions. Despite the decline year-over-year, private equity platform M&A is 18% of total deal volume, which is in line with historical averages.
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 product lines. These initiatives along with transaction synergies have supported a continuation of elevated valuation multiples, which remained at ~9.5x EV/EBITDA through first half of 2019. Packaging buyers continue to outnumber sellers which doesn’t appear to be changing in the near term. This dynamic coupled with favorable capital markets should keep multiples at higher levels for the coming months.
Key trends in the first half of 2019 Packaging M&A activity include:
- Differentiated packaging assets with attractive end market dynamics continue to garner significant buyer interest. For example, within Flexible Packaging both Food & Beverage and Medical increased their portion of overall deal activity
- Private equity firms are experiencing lower exit volume in H1 2019, driving add-on activity to grow platforms. These add-ons are supported by current low costs of financing and favorable terms. Larger private equity platforms are benefitting from their scale in competing with large public companies
- There has been a dichotomy of public market valuations between Plastic Packaging companies and Paper Packaging companies during H1 2019. Overall, valuation levels have increased for Plastic Packaging companies while those of Paper Packaging companies have declined. It appears that Paper Packaging companies have struggled with industry pricing dynamics, however, they are expected to benefit from the growth in e-commerce
- A key issue for overall Plastic Packaging is consumer focus on plastic waste, specifically with single-use plastics such as hotel amenities, straws, water bottles, and shopping bags. Companies are responding by developing more sustainable packaging solutions and increasing focus on recycling
Overall, given the strong performance of Packaging M&A in the first half of 2019, PMCF is optimistic regarding the balance of the year. As indicated by overall valuation levels and buyer interest in achieving value-added growth through M&A, differentiated packaging companies remain attractive acquisition targets. The slight decline in H1 2019 compared to 2018 levels does, however, cause some pause with several concerns including the length of the current economic cycle as well as negative press regarding plastic waste. These issues may impact some buyers, but the majority continue to use M&A to accelerate growth and market positioning or build platforms.