the $800 billion global packaging industry · today’s packaging industry m&a activity remains...

These numbers make the packaging industry a darling for both strategic and sponsor investors who are drawn to the ongoing consolidation of an industry that remains largely fragmented, maintains defensive characteristics, and experiences growth tailwinds provided by e-commerce, on-the-go food/beverage, and healthcare markets.

The robust demand for packaging assets is reflected in the valuations of these companies. In 2018 the mean EV/EBITDA multiple for packaging acquisitions was 9.0x, well above the longer-term median of 8.3x since 2006. The healthy valuations achieved

by sellers have been supported by lenders’ willingness to finance packaging acquisitions, with leverage multiples today sometimes surpassing 6.0x total debt / EBITDA.

CONTENTSI. INTRODUCTION TO

PACKAGING

II. 2018 MERGERS & ACQUISITIONS ACTIVITY

III. SPECIAL TOPICS IMPACTING M&A

IV. SUMMARY

THE $800 BILLION GLOBAL PACKAGING INDUSTRYTRENDS IN M&A IN 2018

By Jonathan White, Managing Director, Mazzone & Associates

Today’s packaging industry M&A activity remains heightened and shows no sign of slowing down. In 2018 there were 331 acquisi-

tions of packaging companies, a pace well ahead of 2017’s record 307 transactions. Statistics indicate that the world packaging in-

dustry’s market value will reach $1 trillion by 2020. That’s up from a current level of approximately $850 billion.

ShareVault and Mazzone & Associates

2

I. INTRODUCTION TO PACKAGING

The packaging industry pervades the entire economy and is an $850B industry encompassing both industrial and consumer products, B2B and B2C, and integral not only in legacy retail establishments, but also e-commerce markets.

Typically, operators and investors define the packaging industry in terms of product types, reflecting different manufacturing technologies, competitive fields in the underlying markets, and the trends that impact them.

Packaging Value Chain: Inputs & Substrate Manufacturing

At its essence, packaging is the conversion of commodity raw materials. Many of the entities supplying the packaging industry materials are large international industrial concerns selling at prices determined in global markets and driven by volume and economies of scale.

Given their larger size in comparison to the typically smaller packaging

converters, they exert a great amount of leverage in the supply chain, with material costs being the largest single component of packaging cost of goods sold.

Packaging Value Chain: Converting

In addition to raw materials, integral to the supply chain are equipment manufacturers that operate across a wide range of capital intensity. On one end of the spectrum are suppliers of equipment such as glassblowers, paper machines and pulping machines, which

Source: Smithers Pira

Paper & Board, 31%

Rigid Plastics,

23%

Flexibles, 22%

Metal, 14%

Glass, 7% Other, 3%

Types of Packaging:

The $800 Billion Packaging Industry: Trends in M&A in 2018

3

Extrusion, MoldingCan Making Paper Manufacture Glass Blowing

ResinSteel/Aluminum Fiber/Pulp Sand/Soda Ash

Equipment

Paper RollstockCans Bottles Flexible PlasticsRigid Plastics

Printing / Labeling Forming

Cutting / SlittingCoating / Laminating

Inks/Coatings

Equipment

Inputs, Substrate Manufacturing, and Other Elements of the Packaging Value Chain:

The Packaging Value Chain - Converting:


4

have very high capital requirements. Users of these assets often have a “mill mentality” where they are constantly seeking to maximize the utilization of their capacity.

On the other end of the spectrum are suppliers that require a much lower level of capital intensity, such as suppliers of equipment for printing, laminating, labeling and molding. It

is these sectors which are currently experiencing heightened investment activity, as they are more fragmented and driven by competitive strategies of differentiation.

The packaging industry also includes areas outside the core processes of forming and decorating, such as design and engineering, contract filling, distribution and recycling.

Key Players / Competitive Landscape

The graphic below illustrates some of the key players in the relatively consolidated segments of the packaging space.

DistributionDesign & Engineering /

Graphics

Contract Filling

Reclamation / Recycling

Metal Container Group

Highly Concentrated Highly Concentrated Medium Concentration


5

These are older formats of packaging—glass, cans and some forms of the intermediate paper market. These are

typically very large, publicly traded companies that operate on a multi-regional or multi-national basis.

Highly Fragmented Highly Fragmented Highly Fragmented

Key Players / Competitive Landscape—Highly Fragmented

As seen in the graphic below, key players are more fragmented in the segments of Rigid Plastics, Rigid Flexibles and Distribution. These sectors are comprised of a much larger

array of smaller competitors; the largest of these competitors will span global regions, with smaller players concentrating in their home markets. Most companies in these segments are under $5 billion in revenue, with many well below that.

Widely Disparate Degrees of Concentration

To further illustrate the competitive structure of the industry, the graph on the next page illustrates the market share that the top four firms have in

any one market. More established formats of packaging such as cans and glass, as shown on the left side of the graphic, are highly consolidated with essentially the top four players comprising the entire market share.


6

In the middle of the graphic, Paper Board (a semi-finished product) is also relatively concentrated—typically with vertically-integrated forest products companies. This demonstrates that the consolidated segments of glass, cans, and integrated paper compete on economies of scale where “bigger is better” and M&A is used to achieve those goals.

Further to the right are the far less established formats of flexible packaging, which are much more fragmented. Here, M&A is typically used to attack specific segments or niche markets in order to be

competitive in a faster growing sub segment, or where sponsors use the fragmented marketplace to roll up specific segments and create value through consolidation.

It is important to note that packaging markets generally operate on a regional basis. Especially as we get closer to the customer, packaging is a “local market”, with finished packaging product typically not traveling well for international markets (on a value/weight-space basis). Many packaging markets operate regionally or locally, thus providing a degree of insulation from international competition.

Consistent Growth Profile

Overall, the packaging industry exhibits robust growth, growing on average about 4.5% over the last 20 years.

There were six times during this period when growth exceeded 10% in one year. The 2018 spike was driven by both overall economic growth and by M&A among some of the larger players

Degrees of Concentration - Four-Firm Ratio for Packaging Markets:

Source: Citi GPS

0%10%20%30%40%50%60%70%80%90%

100%

Euro

pean

Bev

Can

NA Glas

s Con

taine

rs

NA Bev C

ans

NA Blea

ched

Boa

rd

NA Con

taine

rboa

rd

Euro

pean

Glas

s Con

taine

r

Euro

pean

Con

taine

rboa

rd

Euro

pean

Flex

ible P

acka

ging

NA Flex

ible P

acka

ging


7Source: Smithers Pira

2.9%

1.0%

2.4%

1.4%

2.8%

3.4%

3.4%

2.4%

4.0%

3.8%

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5%

Total Packaging

Other

Glass

Metal

Board

Rigid Plastic

Flexible Paper

Flexible Foil

Flexible Plastic

All Flexible Packaging

Varying Sub-Sector Growth Profiles:

which are tracked in this data. Only twice has growth contracted—once during the Great Recession of 2009 and then again during the mini recession of 2015.

The packaging industry grows at GDP or better (tracking closest to the non-durables GDP component), providing a solid foundation for investment and operating.

Source: Capital IQ

-15%

-10%

-5%

0%

5%

10%

15%

20%

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

F

20-year Average Growth = 4.5%

Median Annual Revenue Growth:

Varying Sub-Sector Growth Profiles

Overall market growth across sub sectors is forecast through 2022 to just under 3%. Within sub sectors, however, there is significant variation in growth.


8

Flexibles and Plastics are forecast to growth from 3.4% to 4%, while some segments—metal, glass and others significantly trail at less than 2%.

This variation in growth is driven by functional differentiation. The transition from rigid to flexible is well documented as flexibles can provide weight reduction (system cost benefits) and shelf differentiation, with new technologies also improving their barrier and safety features. This in turn informs the M&A strategy that a lot of companies are employing, i.e., seeking specific functional technologies within flexibles and employing M&A to gain market share in this still-fragmented sector.

On the other hand, players in slower growth segments are concerned about globalization and managing capacity.

Consistent Profitability Through Growth Cycles

Overall, the packaging industry has a robust and stable margin profile, averaging 13.4% over the last 15 years.

In the last five years we note an uptick in the margin profile of the industry. This can be attributed to a number of things. First, the last five years has seen a relatively benign commodity pricing environment. The ability of converters to manage and pass through these costs enhances the ability of a packaging company to manage its margins. Secondly, the packaging industry is maturing. The benefits of consolidation continue to be realized as larger competitors leverage greater margins and greater infrastructure. This serves to raise the overall margin profile of the industry.

Source: Capital IQ, Mazzone & Associates Research

10.00%

11.00%

12.00%

13.00%

14.00%

15.00%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

15-year Average Margin = 13.4%

Median EBITDA Margins:


9

Varying Segment Profitability

The above graph illustrates the deviation from the average EBITDA margin for major product segments. Glass, for example, is trading at about 150 basis points above the average. We attribute this performance to the fact that Glass is quite possibly the most consolidated packaging format and it exhibits high barriers to entry. Players in the glass sector are doing well in managing capacity and maintaining margins in a low growth market.

Cans, Paper and Plastic exhibit smaller deviations, all trading within 100 basis points of the mean. Interestingly, the Multi-Substrate segment (defined as companies without a single dominant format within their packaging portfolio, e.g., companies doing equal amounts of Rigid Plastics and Flexible Plastics, or Metal and Plastic) trails the average by 130 basis points. This raises a question as to whether there is a margin benefit to providing packaging across a wide range of formats of segments as opposed to specialization in a segment.

Source: Mazzone & Associates Packaging Benchmarking Study, 2018

-0.70%

1.50%

0.90%

0.50%

-1.30%-1.50%

-1.00%

-0.50%

0.00%

0.50%

1.00%

1.50%

2.00%

Cans Glass Paper Plastic Multi-Substrate

Median EBITDA Margins:

Multi-SubstrateCans


10

II. 2018 MERGERS & ACQUISITIONS ACTIVITY

Long-Term Volume Trend

To put 2018 into perspective, the packaging industry has been averaging nearly 300 transactions per year since the great recession of 2009 and 2010. This can be attributed to consistent growth, consistent profitability, and the

ability to pursue different strategies, such as consolidation, specialization, and taking advantages of shifts in formats. This interest also reflects packaging’s “defensive position,” but also because packaging offers a defensive position (stable volume and margins), which creates interest among private equity groups as a tool to manage through economic cycles.

Source: Cap IQ, Mazzone & Associates

304

256

212

244

288 290278

296281

302 307331

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Average Since 2011 = 297Median EBITDA Margins:

2018 Deal Volume by Quarter

For a closer look into 2018, the remainder of this paper uses Mazzone & Associates’ internally developed database of transactions. For 2018, Mazzone & Associates tracked 236 Transactions.

2018 quarterly deal volume started softly, with 44 transactions in Q1, peaked in Q2, and leveled out in Q3

and Q4. This seasonal trend is fairly typical of activity in the packaging M&A space. Preliminary data from Q1 of 2019 shows that M&A activity is approximately on par with Q1 of 2018. Based on this performance and a considerable pipeline of announced, but not yet closed transactions, we anticipate a similar level of volume for 2019 as in 2018.


11

Volume by Packaging Type

In 2018, over half of the M&A activity was split among the Flexibles and Paper-Based segments.

Flexibles is particularly interesting as the segment constitutes 22% of the $850 billion marketplace forecast but “over-represents” M&A activity with 28% of total deal volume. The heightened interest in the Flexibles segment can be attributed to the segment’s growth and to the number of smaller Flexible companies which provide available targets in the marketplace.

Source: Mazzone & Associates Research

44

74

60 58

Q1 Q2 Q3 Q4

Packaging Transaction Volumes, 2018 Total Sample of Transactions = 236

Packaging Transaction Volumes, 2018 Total Sample of Transactions = 236

Flexibles28%

Paper Based27%

Rigid Plastic16%

Rigid Other6%

Distr & Contract Pkg

8%

Mach & Equip10%

Multi-format5%



12

For the paper-based segment, the opposite is true. While 27% is still a robust volume of transactions, it under-represents the 31% of the market that Paper-Based packaging holds. We do not see this yet as a trend, as 2019’s data indicate a higher level of activity in the paper space than 2018.

Valuation by Packaging Type

2018 saw multiples of 9.0x EBITDA and 1.1x Revenue, a slight uptick over 2017 and a significant increase over the last 10 years.

This is the fourth year with multiples at these high levels. We also note the discrepancy between the mean and the median. When examining the data on a deal-by-deal basis, we find that many

transactions transpired at 10, 11, or 12+ times EBITDA, and thus also a large number of transactions transacting below 7 or 8 times EBITDA.

The highest valuations are found in Rigid Packaging, which trades at above average values of both EBITDA and Revenue. Lower valuations are found in Flexibles and Machinery & Equipment, both trailing the 9.0x EBITDA mean by approximately half a turn. On a revenue basis, however, Flexibles and Machinery & Equipment segments are above the mean, indicating a higher margin profile in those two segments.

Distribution, on the other hand, at half a turn of revenue, is indicative that distribution markets trade differently given the lower margin profile prevalent in that segment.


Value by Packaging Type:

8.5x

8.9x

9.3x9.2x

8.5x

Flexibles PaperBased

RigidPlastic

RigidOther

Mach &Equip

Mean EBITDA Multiples(Overall Mean 9.0x; Median = 8.6x)

1.2x

0.9x

1.3x

1.8x

1.3x

0.5x

Flexib

les

Pape

r Bas

ed

Rigid

Plasti

c

Rigid

Other

Mac

h & Eq

uip

Distrib

ution

Revenue Multiples(Overall Mean 1.1x; Median = 0.9x)


13

Buyer Activity

Segmenting buyers illustrates that private equity groups, including private equity buyouts and private equity platforms, represent about 44% of all transactions, with the balance being comprised of corporate and private buyers.

This has been fairly consistent for the last five years. The high rate of participation by private equity buyers can be attributed to:

(i) stable growth and profit margins providing a “defensive investment” – driven by the nature of many packaging customers,

(ii) availability of leverage – 5x+ leverage was not uncommon in 2018,

(iii) relatively low capex compared to cash generation, and

(iv) ability to leverage add-ons and arbitrage size multiples upon exit

Also notable is pricing. The orthodox view holds that incumbent (strategic) buyers can pay a higher price as they have a greater ability to extract synergies from an acquisition than does a financial (private equity) buyer. The data indicates the opposite. The data indicates an approximate two-turn premium paid by private equities over corporate and private buyers.


Total Deal Volume byBuyer Type EBITDA Multiple by Buyer Type

Corporate39%

PEG Buyout

17%

PEG Platform

27%

Private17%

8.3

10.4x

Corp/Private Private Equity

Deal Volume and EBITDA by Buyer Type:


14

Seller Activity

Considering sellers in the marketplace, we see that the majority of sellers are private companies with the balance almost equally divided between Corporate and Private Equity. We also see a familiar disparity in pricing between Private Equity and Corporate/Private sellers.


Total Deal Volume bySeller Type

EBITDA Multiple by Seller Type

Corporate23%

Private Equity20%

Private57%

8.3x

10.3x

Corp/Private Private Equity

Deal Volume and EBITDA by Seller Type:

While we previously noted that private equity buyers are paying a premium of two times to get into the packaging market, they are also extracting that same premium when they exit.

To better understand this dynamic, we analyzed each segment of Seller. In the two right graphs (below), Corporate Sellers are most likely to sell to other Corporations, and Private Sellers

approximately split equally between Private Equity and Corporate Buyers. Compare this to the left-hand graph, which shows that the vast majority of Private Equity activity tends to be among the Private Equity universe. Fully 71% of Private Equity transactions are among private equity sponsors, who are essentially creating their own market and supporting the premium valuations among these Buyers/Sellers.


15

Geographic Activity

It’s informative to consider volume and pricing segmented by geography. This dataset is dominated by activity within the US and Canada (50% of the sample), with 36% outside of both the US and Canada, and 14% represented by activity crossing US/Canada and international regions. We suspect a higher volume of activity

outside of the US/Canada (particularly in developing markets), but many of these transactions are not disclosed and/or cannot be verified. From the available data, however, we can note that the EBITDA multiple within the US and Canada market is about 1.5 turns greater than that of non-US/Canada and cross-regional transactions. This is indicative of a well-developed M&A

Deal Volume and EBITDA by Seller Type:


When Private Equity Sells

Corporate Buyer19%

Private Equity Buyer71%

Private Buyer10%

Corporate Buyer57%

Private Equity Buyer

30%

Private Buyer13%

Corporate Buyer38%

Private Equity Buyer42%

Private Buyer20%

When a Private Company SellsWhen a Corporate Sells

(Sample size 48 transactions) (Sample size 134 transactions)(Sample size 54 transactions)

Total Deal Volume by Geography

Non-US/Can36%

US/Canada50%

US/Can & Intl14%

8.5x

10.0x

8.4x

Non-US/Can US-Can US/Can & Intl

EBITDA Multiple byGeography


16

market in North America and the prevalence of private equity activity in this marketplace relative to other geographies.

Activity by Revenue Category

Segmenting data by (target) revenue size reveals interesting disparities in EBITDA multiple valuations. The smallest deals, those under $50 million of revenue, trade two turns below the total deal median valuation of 8.6x (and mean of 9.0x).

In the next size bracket (revenues of $50 to $100 million), the size discount shrinks to one turn from the median. Companies with a revenue base of $100 million and above can achieve a premium valuation of nearly 10x. We find no discernible advantage for the largest companies (above $500 million) as compared to targets with revenues of $100 to $500 million.


Total Deal Volume by Revenue Size (converted to USD)

EBITDA Multiple by Revenue (converted to USD)

Under $5040%

$50 to $10017%

$100 to $50027%

Over $50016%

6.4x7.4x

9.7x 9.8x

Under $50 $50 to $100 $100 to$500

Over $500

Deal Volume and EBITDA by Revenue:

This analysis also illustrates how investors can arbitrage size. For example, consolidators investing into the space can buy two companies with under $50 million in revenue at 6.4x EBITDA, consolidated them, and then sell them at 9.7x. Assuming no other change in profitability, this investor can theoretically create value simple by arbitraging the size of its acquisitions.

* Note that for deal volume analysis, this dataset is inherently incomplete, as larger transactions more typically disclose data and can be validated. Smaller (undisclosed) deals very likely comprise a much larger portion of the overall deal universe.



17

Transaction Motivations

The last segmentation analysis considers the motivations of transactions. While this analysis must be somewhat subjective, it is based not only on knowledge of the transactions, but also of our knowledge of the buyers and sellers in the marketplace.

We identify four primary motivations in the market. At the top of the list was market share consolidation, or doing more of what you do in the market you are currently in. This is followed by geographic expansion, which is doing what you already do, but in a new national or regional marketplace. That is followed by product market

expansion, which is using M&A to bring the company into a new strategic area. Then finally, a financial motivation which includes not only private equity platforms coming into the space, but also includes IPOs, private investor acquisitions and similar types of transactions.

On a Multiples Basis, the highest valuations include those for Financial Motivations (as we have seen in Private Equity acquisitions) and in Product/Market Expansions, which can be the most strategic. As a Seller, it is thus important to position yourself to these buyers in any sales process.


46

76

84

103

0 50 100 150

Financial

Product/ MarketExpansion

Geographic Expansion

Market Share/Consolidation

(Total of 310 exceeds sample size as a given transaction may have more than one motivation)

EBITDA Multiple by Motivation

7.0x

8.6x

10.2x 10.2x

GeographicExpansion

MarketShare/

Consolidation

Product / MktExpansion

Financial

Transactions Motivations:

Market Share/ Consolidation

Global Espansion

Product/Market Expansion

Financial


18

III. SPECIAL TOPICS IMPACTING M&A

Based on our review of the activity in 2018, we have identified several trends affecting merger & acquisition activity in the packaging industry significant enough to highlight:

1. Consolidation

2. E-Commerce

3. Private Label and Small Market Brands

4. Premiumization

5. Sustainability

Ongoing Consolidation

Consolidation activity continues to span many segments within packaging, including many among serial acquirers:

• Flexibles: Corporate consolidator TC Transcontinental has amassed a significant Flexibles business via acquisition with deals in 2018 including both Multi-Film, a small, privately-held integrated converter and the Coveris Flexibles business, itself an amalgamation of assets acquired by Sun Capital. TC is aggressively buying Flexibles assets and highly probable to continue this in 2019.

• Paper: DS Smith acquired EcoPack/EcoPaper, a family-owned business in Romania and Corrugated

Container Corp, a family-owned business here in the US. This in turn builds on their acquisition of Interstate Packaging in 2017 and shows the ongoing activity of acquisitions in the paper space. DS Smith, historically also active in the plastics space, is this year divesting its plastic packaging business to Liqui-Box (Olympus Partners platform), which may serve to simplify and concentrate its paper-based business.

• Rigid Plastics: Graham Partners, a long-standing private equity investor in the packaging space, has built a platform in Thermoformed Packaging with 3 transactions: EasyPak (late 2017), Tray-Pak (late 2017), and then adding to that Nuconic (fka Winkler Plastics) from Carlin Capital Partners in 2018.

Flexibles37%

Paper-based29%

Rigid12%

Distr & Contract

Pkg11%

M&E5%

Other6%

2018 Consolidating Transactions by Sector:


19

• Distribution and Contract Packaging: An interesting development here is the expansion of Tricor Braun, a portfolio company of AEA Investors, which continues to consolidate Packaging Distribution in both rigid and flexible formats. In 2017, Tricor expanded from its historical base in rigid packging distribution into flexibles with the acquisition of Taipak. In early 2019, Tricor added to its presence in flexibles with the acquisition of Pacific Bag. Not to be forgotten, in 2018 Tricor added on Package All (rigid, OTC pharma).

• Machinery & Equipment: This is an area which has seen signification consolidation recently, an observation impossible to miss this at last year’s PackExpo, where many historical brands of equipment showed up under common tents as ProMach (acquired by Leonard Green in 2018). Berwind is another

example we point to here, with this sponsor acquiring Rotometrics (cutting dies, from Sentinel Capital), and Maxcess (web handling, from Bertram Capital, which only earlier in the year had acquired Componex).

E-Commerce

A significant impact on M&A Activity is the changing landscape of Retail. The rise of e-commerce changes the demands on packaging—different levels/types of protection are needed (while avoiding inefficient shipping of air) and the changing of the “moment of truth” from “the silent salesman” on the grocer’s shelf to the opening of the Amazon package. This will be accelerated by Amazon’s “Frustration Free Packaging Program” that requires sellers to reduce waste, damage and to delight customers. Chargebacks for not meeting requirements begin August 1 of 2019.

2018 Sample Consolidating Transactions:


20

We are seeing the impact in M&A:

• Rising importance of corrugated packaging – driven by the volume of boxes used to repack Amazon. Consider the aforementioned acquisition of Corrugated Container by DS Smith, as well as New Indy acquiring a paper mill from Resolute and for conversion to use to make corrugated containers.

• In protective packaging, we note Sealed Air’s acquisition of Austin Foam Products, a fabricator of foam, corrugated, molded pulp and wood protective packaging for retail, e-commerce and direct shipping. Also, consider One Madison’s acquisition of Ranpak, the leader in paper fill used to cushion products in shipment. And finally Pregis, a portfolio company of Olympus Partners, acquired

FP International, a competitor in air-filled and void fill protective packaging.

Changing Retail Landscape: Private Label and Small Market Brands

One of the other major shifts noted in the retail world is the rise of Private Labels and Small Market Brands at the expense of established brands of major CPGs. Packaging suppliers are finding opportunities for growth by focusing on this market, which has evolved well beyond imitation or second rate packaging. Rather, packaging suppliers can bring expertise to small and private label brand companies that lack these capabilities in house (e.g., graphics, barrier requirements) and who focus on short-runs (different assets, capabilities). This is also evidenced in several deals that we see in the market:

2985 3043 3111

390 453 517

$2,000

$2,500

$3,000

$3,500

$4,000

2016 2017 2018

US E-commerce v. Brick & Mortar Sales

Brick & Mortar Ecommerce

Source: Internet Retailer, US Commerce Department

Acquirer Target

E-Commerce and the Changing Retail Landscape:


21

Private Label and the Changing Retail Landscape:

• Gridiron Capital’s acquisition of Royal Paper (private label tissue products)

• Bunzl’s acquisition of CM Supply (foodservice Distributor - own brand and customized foodservice packaging)

• Fushion Packaging’s acquisition of Architectural Beauty (Private label cosmetics and skincare development company)- this is an example of how a packaging company can expand that suite of services to customers that don’t have that skill set in-house.

Changing Retail Landscape: Premiumization

We also note the shift to “Premiumization” in the market, with premium brands gaining share at the expense of mid- and

discount-positioned products. While discount offerings represent 60% of revenue for major brands, premiumization is sustaining over 1/3 of volume and driving the most growth. Often, these brands use packaging to convey their additional value. Packaging companies are taking advantage of this via M&A:

• Citic Capital’s buyout of Axilone (French provider of primary plastic and metal Packaging for premium lipstick, fragrance, and skincare sectors, from Oak Hill Partners).

• Van de Velde’s acquisition of Vekopak (production of premium packaging including cold foil, spot UV varnish, gold varnish, relief varnish, soft touch varnish, foil print, window patching and embossing).

Source: The Nielsen Corporation

Acquirer Target


22

• Smartrac’s (One Equity Partners’) acquisition of eApeiron from Alibaba, allowing Smartrac to expand its RFID-based IoT solutions for both customer experience and product authentication - key for premium products

Sustainability Issues Driving M&A in Recycling Assets

No discussion of Packaging can afford to dismiss issues of Sustainability, which after years of discussion are finally starting to have an impact in the market. Two particular impacts are noted in recent M&A Activity – shifts in product format and shifts in the recycling market.

Packaging Waste is a well-publicized event, but the market was disrupted significantly in 2017-18 with China’s

National Sword program to limit imports of waste streams. While the impact has been somewhat dampened by diversion to other nations, this is only a partial and perhaps temporary solution (India is supposedly next in the limitations of waste). Much of these waste streams are paper-based, which has led industry participants to use M&A to address gaps in the chain, for example:

• DS Smith’s acquisition of EcoPack

• Westrocks acquisition of QRS Recycling

• Mauser’s acquisition of the Decarbonization business of Incineration Recycling Services

• Nine Dragons’ acquisition of Resolute’s Fairmont Mill (218,000 tpy recycled pulp mill)

-7.4

-1.6-0.7

1.8

6.3

-10

-8

-6

-4

-2

0

2

4

6

8

Tier 1(Discount) Tier 2 Tier 3 Tier 4

Tier 5(Premium)

Growth in Share by Price Tier (2017)

Source: The Nielsen Corporation

Acquirer Target

Premiumization and the Changing Retail Landscape:


23

Sustainability Issues Driving M&A in Shifting Formats

Also a result of the drive for sustainability are shifts in product format—moving away from disposable plastics and particularly difficult-to-recycle materials. If you can provide a product solution, you will be an attractive M&A target:

• Hoffmaster Group’s acquisition of Aardvark – the only paper straw manufacturer in North America in 2018

• Revolution Growth’s investment in TemperPack, a company seeking to replace single use plastics, such as Styrofoam®, with proprietary bio-based materials.

Sustainability Issues Driving M&A In Shifting Formats:

Source: Citi Research, UNEP

Leakage, 32%

Incinerated, 14%

Landfilled, 40%

Recycled, 14%

Packaging Waste – 86% Disposed/Littered Acquirer Target Format Shift

Plastic Straws to Paper Straws

EPS, Plastic to Jute, Paper

EPS to Paper

Plastic to Paper

Sustainability Issues Driving M&A and Recycling Assets:

Source: Citi Research, UNEP

Leakage, 32%

Incinerated, 14%Landfilled, 40%

Recycled, 14%

Packaging Waste – 86% Disposed/Littered

Acquirer Target


24

• Graphic Packaging’s acquisition of Foodservice Assets of Letica – to meet increased demand for paper cups to replace foam cups

• Long Falls Paperboard acquisition of Neenah’s Brattleboro plant – actually a mill slated for closure and repurposed for packaging grades – an example of moves from “paper” mills assets to packaging grades to meet increased demand for these sustainable products.

IV. SUMMARY

The packaging industry is an enormous sector that provides significant opportunities for growth and value, which has led to a sustained high level of Mergers & Acquisitions activity. Analysis of the underlying industry dynamics and transaction data provides insights to how strategic and private equity investors are creating value. Expect activity in the space to continue unabated based on underlying positive industry fundamentals, shifts in the product formats, retail dynamics, the search for economies of scale, and social demands circling sustainability.


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About Jonathan White Managing Director, Mazzone and Associates

Jonathan White joined Mazzone & Associates in 2017. As a Managing Director, he focuses on industrial transactions, primarily in the plastics, packaging and manufacturing space. He has successfully completed sell-side and buy-side representation, joint ventures, and recapitalizations across a variety of industries but with specific expertise in packaging, plastics, and printing related markets.

Mr. White brings a wealth of experience not only from Investment Banking but also from Corporate Development and Financial and Operations Management. Prior to joining the firm, he was a Senior Director of Strategic Investments for Jabil Inc. (NYSE: JBL), where he engaged in defining and executing Jabil’s expansion into the consumer packaging industry. Prior to Jabil, Mr. White served as a CFO and Development Officer for two private groups investing in manufacturing, where he both managed platform companies and refined portfolios through acquisitions and divestitures. Mr. White started in the packaging industry in Corporate Development and Operations Management for Rexam PLC.

Mr. White received a B.S. from the University of North Carolina at Chapel Hill, where he was elected Phi Beta Kappa, and an MBA from the Darden School of the University of Virginia.

About Mazzone & AssociatesMazzone & Associates (www.globalmna.com) is a mergers and acquisitions advisory firm that provides comprehensive transactional services for middle market companies, private equity groups and individuals buying and selling companies, raising capital and structuring debt. Additionally, they offer merchant banking services for select transactions when appropriate.

Mazzone & Associates is relationship-focused. They appreciate that their assignments are “life events” for their clients – particularly for management teams, entrepreneurs and family-owned businesses who have substantial portions of their net wealth at risk in their business. They have experience working on over 200 transactions valued in excess of $50 billion across a broad range of industries. Yet, they focus remains the single most important advantage they provide to their clients.

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