Plastics and packaging M&A volume finished the decade strong with 337 deals in 2019, an increase of 3% year-over-year and yet another year of 300+ transactions. This growth has been driven by a large increase in private equity add-on activity which increased 19% to reach a record number of 88 deals in 2019. Also attributing to the overall growth in plastics and packaging M&A was an increase in strategic buyer acquisitions, which grew by 8 deals and represented 55% of total transactions in 2019. Private equity platform transactions decreased by 12 deals, or 16%, over 2018 which highlights the continuation of a trend seen in the first half 2019. Sellers appear to be favoring buyers that offer a strategic benefit (strategic buyer or private equity add-on) vs a platform private equity buyer. Part of this is likely due to strategic buyers and private equity backed strategic buyers paying higher valuation multiples due to potential synergies that are not available to a pure financial buyer.
Key trends in 2019 plastics and packaging M&A activity include:
- Deal multiples remain strong across most sectors of plastics and packaging which continue to motivate sellers to explore transactions
- Private equity continues to be a major driver of overall deal activity as more investors have become interested in plastic and packaging companies, particularly ones that operate in non-cyclical end markets such as healthcare and food
- Large corporate players in the industry are using M&A to drive growth and support higher stock market valuation multiples. Corporate divestitures are also contributing to overall M&A activity
- From an end market perspective, Automotive/Transportation and Construction related transactions experienced the largest increases in activity, increasing by 17 and 12 deals, respectively. Also contributing to the growth were increases the Food & Beverage, Medical, and Electronics end markets. The Industrial and Consumer segments were the only two end markets to experience a decline in volume in 2019
- Plastic Packaging M&A volume decreased by 13 transactions and represented 39% of total transactions in 2019, down from 43% of total transactions in 2018. Despite the year-over-year decline, plastic packaging M&A volume is still well above historical averages and continues to be an attractive segment for most buyers
- One of the biggest issues in packaging currently is the negative consumer sentiment towards plastic waste and 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
PMCF expects 2020 to be another strong year of plastics and packaging M&A activity based on the current economic environment, pipeline of transaction activity in process, and the continued interest by both strategic and financial buyers in the industry. Some factors that we are watching that could have an impact include supply of sellers compared to the level of buyer interest, negative press around plastics waste, capital markets and availability of favorable debt packages, U.S. and China tariffs, trade wars, and the uncertainty surrounding the upcoming election and potential for conflict in the Middle East.