AWA M&A Forum Accentuates Middle Markets

Published: March 05, 2016, By Jackie Marolda

CHICAGO, IL | Strong mergers and acquisition activity with emphasis on middle markets was the focus at the recent AWA Alexander Watson Assoc.'s Mergers & Acquisitions Executive Forum 2016 at the University Club of Chicago, IL, on February 29th. Sponsored by Benesch and Blaige & Co., the one-day forum was staged for the resin and fiber-based packaging, coating, and converting industry, and dedicated to strategic investing.

Included here are key take-aways from the following expert presenters:

David Silverstein, CEO, BMGI addressed the importance of Operational Due Diligence in M&A Transactions. “Operational due diligence is very different from legal and financial due diligence. Operational due diligence sheds light on the unique properties that the business competes on and what makes that company special.

“You need to do a lot of work to study operational differences: Hold brainstorming sessions for the companies you are doing diligence on; develop a unique checklist about that company. Operations due diligence generally has the least amount of rigor. . . [and] is often done as an afterthought,” added Silverstein.

Ian Murdoch, European leader, Forestry, Paper & Packaging Practice at PwC, shared general trends from the company’s Global Forest Paper & Packaging Industry Survey 2015. The outlook to 2014 included political tension, oil price collapse, developing economies, explosion in debt since 2008, global economic slowdown, and China as a net outward investor.

“As for 2015, it was a year of mixed signals. IMF growth was starting to look good and we hope finally that it was the nail in the coffin of the recession. We are concerned about the level of debt around the world and of the general lack of level financial discipline about running the economies,” Murdoch shared.

Murdoch added that we are seeing, “emerging economies weakening, mature economies stronger, and the Eurozone lifted out of stagnation.” Overall, he stated, the industry is always looking for new uses of fiber and pulp, growth has been difficult to come by, and there is pressure on all territories.

Jim Hill, led a panel discussing changes in the market and auction process. Highlights include:

• The economy is slow, not growing quickly. You have to be inquisitive for growth,” shared Hill as he introduced the panel.
• Highlighting global differences, Wolfgang Berger, head of Strategy & Business Development, Mondi Group, stated, “In North America many people prefer to run auctions, but in Europe and Asia it is not as common. . . . For a company that is high on their list, they would want to participate in an auction.”
• Gregory Myers, senior managing director, Mason Wells, shared that the company is highly involved in middle to lower market deals. While the firm has a balanced approach for value creation, Myers explained, "We’re looking for companies that have growth opportunities with investment in business to further grow the business. . . .” A selective approach, for example, allows the company to become familiar with a family business over a long time, building a relationship for future transactions.
• Commenting specifically on the packaging and converting industry, Brett Snyder, director, Nicolet Capital Partners, commented, “The target company is often between very large customers and very large vendors. One of the things we look for in a business is that it has pricing power, the ability to pass off commodity pricing changes that typically revolve around a service advantage, unique processing capabilities, technologies, chemistries, and what they’re doing with base materials.” Snyder indicated that Nicolet Capital Partners generally uses auctions for platform transactions, not add-ons.
• Myers added, “Strategic transactions are more active today than they ever were. With the cash balances out there, with the market growing around 2% in this country, strategic deals are looking for growth in many ways, leaving itself to more strategic activity. Strategic folks like cleaner deals, and strategic deals need TLC.”

Thomas Blaige, chairman and CEO of Blaige & Co., presented updated data from the company’s ongoing research regarding the packaging industry. He reported we are seeing continued consolidation in the packaging industry. “It is more difficult for small and mid-cap companies to compete with so much consolidation in large cap companies.

“The industry is at the top of the cycle,” Blaige stated. “The cyclical peak can be tracked with an average up cycle of six years. The year 2015 was the sixth year in an upcycle. So based on general trends, we’re at the peak,” Blaige explained.

“There is a paradigm shift in valuation of manufacturing companies,” stated Elisha Tropper, CEO & president of T3 Assoc. The investor looks at the value of the company in terms of the price they will pay, whereas existing management considers the value to be what the assets can be in the future. Topper emphasized, “It is critical to understand your valuation and be able to communicate it to the other side.. “The demand for manufacturing assets is great, and there are buyers aplenty,” Tropper claimed. “There is reduced supply in North America, so deals are harder to close,” he added. “Investors are flocking to the middle market.”

Brooks Crankshaw, CEO of Highland Ridge Capital, also spoke about the shift from big deals to smaller deals: “Private equity firms have cash. Strategic acquirers have cash. Leverage is available at low interest rates,” he stated. “Volume is way up, but the size of each deal is getting smaller. Big deals are getting fewer. And, multiples are still high even in the middle market.”

John Jullens, principal, PwC US, shared that M&A deals designed from the start to enhance or leverage companies’ distinctive strengths exceedingly outperform other deals. “Capabilities-driven deals outperform limited fit (others) by 14% of annual shareholder return,” he reported. Presentations were given by Mondi and Constantia to share the company’s recent and future M&A goals. Additionally, a market presentation on Smart Packaging was provided by AWA.

Rock LaManna, President & CEO of LaManna Assoc. closed the conference by sharing his personal insights and experiences on working in the M&A industry.

By This email address is being protected from spambots. You need JavaScript enabled to view it., president of August Lion and PFFC Contributor.