Despite turbulence in the public markets, and the energy segment specifically, the packaging sector continued to experience strong transaction volume during the first quarter of 2016. With the exception of some decline in the flexible plastic packaging segment, the industry experienced deal flow in-line with the robust activity experienced in the first quarter of 2015. In total, the first quarter of 2016 resulted in 73 packaging transactions compared with 74 in the comparable 2015 period.
Q1 2015 and Q1 2016 were remarkably similar in terms of overall volume and buyer type. Strategic buyers led with over 70% of acquisitions, while private equity platform and add-on activity was very consistent. Supporting this sustained activity in packaging were aggressive strategic buyers seeking to create new growth opportunities and capture synergies with highly competitive private equity taking advantage of low cost debt conditions.
From a valuation perspective, the limited number of disclosed and available packaging transaction multiples during the first quarter of 2016 appear to reflect similar pricing levels to the second half of 2015. For publicly traded entities the average EV / EBITDA was 9.8x in Q1 2015 versus 9.4x in Q1 2016. Although valuation multiples have slightly declined, they are still high from historical context. PMCF expects strong valuations to continue in 2016 for quality businesses within packaging.
The beginning of 2016 has included several transactions that approached the $1 billion mark. Baring Private Equity Asia’s $775 million purchase of HCP demonstrates the attractiveness of health and beauty, consumer-related packaging assets. RPC Group (LSE:RPC) also purchased food and beverage focused Global Closure Systems for $715 billion to strengthen its European rigid plastics leadership position.
The middle market also saw marquee consolidation activity with AptarGroup’s (NYSE:ATR) $216 million acquisition of consumer products-focused closures manufacturer MegaPlast. Georgia Pacific bolstered its capabilities in corrugated packaging and point-of-purchase (POP) displays via the acquisition of Excel Displays and Packaging. Additionally, Graphic Packaging (NYSE:GPK) completed acquisitions of 3 folding carton businesses: Walter G. Anderson, Metro Packaging and Imaging, and Mexico-based G-Box.
Despite some slowdown among larger deals in the M&A market, and choppiness in public equities, we continue to see strength in packaging as a whole. PMCF believes 2016 should continue to be a “seller’s market.” We are maintaining our current view that M&A in packaging will remain active in 2016, despite potential economic headwinds, given the sector’s historical resilience and the continued fragmentation among the supply base. However, our outlook for the 2017 M&A market is less certain at this time.