AWA M&A Forum Spotlights Innovative Packaging
- Published: May 05, 2017, By Jackie Marolda
Companies with attractive acquisition or merger potential inspire investment opportunities if innovative packaging is a healthy part of their portfolio with the ability to pass through price changes.
The outlook for M&A activity in the packaging industry is alive and kicking, was the sentiment heard at the recent Chicago, IL-held Mergers & Acquisitions Executive Forum 2017 conducted by AWA Alexander Watson Associates & L.E.K. Consulting.
Keynote speaker at this year’s event was Joseph Bartolacci, Matthews Intl. Corp. Bartolacci shared that organic growth is getting tougher, and disruptive technologies can affect every business model. Packaging companies will have to think like marketers, he stated. Packaging continues to see changes driven by online shopping, consumer access to information, and all things digital. Whereas the role of packaging was originally to serve as the "silent salesperson," packaging is now the last media to exert influence on the purchase, said Bartolacci.
This year’s M&A Executive Forum included panel discussions with representatives from all sectors of the investment world: private equity, investment banking, and corporate M&A.
Chris Trick from Pritzker Group Private Equity commented that private equity companies are looking for acquisition candidates that give them a disproportionate opportunity for winning. When acquisition targets have strong intellectual property, they generally have a good percentage of growth opportunity from product line extensions. He suggested people should always be looking for capabilities that can be leveraged into new markets.
Jason Karl, Advent Intl. Corp., got involved with the packaging industry just about two years ago, and he is surprised by the amount of innovation. Opportunities exist to develop high quality products that run faster on customers' lines or have different aesthetic qualities. Advent is looking to buy companies that have that innovation or can build it. The pace of change takes years or decades in the packaging industry, Karl shared. Packaging is not like tech industries. Companies need to find opportunities to develop capabilities in faster growing markets.
Chris Pummell of Mason Wells shared that he sees a shift in the market based on the continued growth of digital printing. Looking forward five to 10 years, digital printing is not going away, he stated. The bigger guys will continue to use digital because it’s hard to ignore when it’s growing 10–15%. Pummell stated that a continued shift to short runs is good for the market because it creates a healthier competitive environment.
When asked about industry multiples, which appear to be at an all-time high, Alex Washington, Wind Point Partners, says he doesn’t see it changing until the credit markets change. Trick agreed, stating that this is the perfect storm with venture capital markets. Coupled with equity capital and strategics looking to grow, the industry isn’t going to see things changing. All the panelists agreed that there is a strong influx of people interested in packaging.
Investment Bankers: All Packaging Is Attractive
According to the Investment Bankers panel, all packaging sectors are attractive right now.
Chris Weil, Barclays, stated that flexible packaging is an attractive area right now with interest in both converters and manufacturers. The universe of investors has broadened, and we’re seeing a group of private investors, he explained, that are interested in packaging, making it that much harder to find good deals.
The corrugated packaging side is seeing strong growth, stated Matt Bowersox, Houlihan Lokey, due to the Amazon factor. As more packages are shipped there will be continued growth in corrugated packaging. However, because of the industry structure with large mills, it would be difficult for private equity to invest because of the structure of the large companies, Bowersox said.
Elliott Farkas, William Blair & Co., commented that plastics are a huge growth area for packaging. However, petroleum-based resins are the single largest cost in plastics packaging. The ability to pass through price increases has become critical to the value and the ability to sell a business, Farkas explained. Quarterly adjustments are being seen now, and businesses that can pass through market based price changes without contract mechanisms are stronger. It is important for M&A that a company can demonstrate and show that they have ability to pass through price changes.
Corporate M&A: Packaging Is Solid Investment
The Corporate M&A panel described the packaging industry as a solid investment that is still seeing growth.
Jonathan White, Four Corners Assoc., believes the packaging industry is still strong and stable, whereas a lot of industries have been devastated. Consistency, earning, and specialized areas within the packaging space are still very attractive. There has been persistent growth in packaging, and there is still room for growth and improvement, he shared.
It is hard to find companies outside of the packaging industry that are still experiencing 15–20% EBITDA, stated John Attayek, Inovar Packaging Group. If you can find a company like this and help it grow a bit, you’ve got a great opportunity. Packaging is still something that people can touch and feel, and the industry is still relatively fragmented in the small/middle market space. There is room for more consolidation, he said.
Several comments from the panel highlighted the importance of considering people in the equation of M&A.
When working internationally, you’ve got to have the proper management team and understand that people do things differently in different parts of the world, and cultural differences are important to manage, shared Stan Bikulege, Novolex Holdings, Inc.
In M&A deals, how you treat people is critical, shared John Collins, Nursery Supplies, Inc. Succession planning is critical in M&A. The CEO of the acquiring company has to spend time with the seller to be sure they’re who you want to be on the new team, Collins added.
The event was hosted by AWA Alexander Watson Assoc. and L.E.K. Consulting. Thilo Henkes of L.E.K. Consulting and Corey Reardon of AWA moderated the panel discussions.
