Sustainability & Automation Adoption Drives Healthy M&A Activity
Capstone Partners released its November 2023 Packaging Update, reporting that sector players have continued to adopt technological innovation, automation, and environmentally sustainable solutions, fueling transaction activity in the space.
The Packaging sector has been upheld by small-to-medium-sized enterprises (SMEs) reporting robust earnings as personal consumption expenditures (PCEs) have reached all-time highs. While increased input costs caused by supply chain constraints and materials shortages have been passed to customers, companies have reported record revenues. However, those that have demonstrated defensible volume growth have commanded the lion’s share of merger and acquisition (M&A) activity.
New sustainability initiatives had been largely muted as the pandemic swept the globe and left packagers adapting to new environments. Legislation has reignited the push for sustainable solutions as new laws have assigned greater responsibility to producers for the end-of-life management of products introduced to the market. Public companies have adjusted, noting sustainability in their recent earnings calls. Mondi (LSE:MNDI) and Graphic Packaging (NYSE:GPK), global leaders in kraft paper and fiber-based packaging, respectively, have expanded and aligned offerings with sustainable consumer preferences through M&A dealmaking.
The pandemic galvanized the need for automation, with Amcor (NYSE:AMCR) and Sealed Air (NYSE:SEE), advocating widespread adoption across the space. This positioned the companies to provide equipment solution models where efficiency is maximized through automation. Despite headwinds to dealmaking, sector players have continued to pursue large, transformational M&A opportunities in year-to-date (YTD) 2023 to capitalize on key performance indicators (KPIs), evidenced by Brady IFS’ acquisition of Envoy for an enterprise value of $1.7 billion.
Moreover, in a space largely dependent on other verticals, demand for Packaging M&A has remained robust. E-Commerce, Consumer Staples, and Pharmaceuticals end markets have performed well year-over-year (YOY). Revenue visibility and inelastic demand for products and services have underpinned M&A pricing in the Packaging sector. Companies that have shown continuous volume growth or provide unique, niche packaging solutions have captured higher valuations from buyers. Conversely, players that have not met sustainability expectations from customers and acquirers have received lower valuations. M&A transaction valuations in YTD 2023 have been dominated by larger acquisitions that have traded at lower EBITDA multiples.
Private equity firms have continued to command a significant portion of M&A activity YTD seeking best-in-class facilities and solution providers with differentiated end markets. Of note, in May, BDT Capital Partners (BDT) and Leonard Green & Partners (LGP), announced its agreement to acquire ProMach, a global leader and differentiator- in processing and packaging (undisclosed).
Also included in the November 2023 Packaging Update:
• Which goals the government and public strategics have set in order to adapt to a changing environment.
• A breakdown of four large deals in the space that have perforated macroeconomic conditions and vitalized deal activity in the Packaging space.
• How private equity firms have continued to command a significant portion of M&A activity, despite a challenging lending environment and specific KPIs driving deals in the sector.
• Insights into a leading consolidator in the Packaging space and a case study of a recent Capstone-advised deal.
Capstone Partners’ Industrials Investment Banking Team provides M&A, capital formation, and financial advisory services to the owners of middle market businesses in the industrial and manufacturing industries. Our team partners with leading mid-to-large sized industrials and manufacturing businesses that serve growing end-markets. We ultimately look to work with companies that manufacture highly engineered products and differentiated services with an entrenched competitive position.
For more information on the Packaging Update featured in this report or to speak with one of our Industrials M&A Team members about how to grow, value, and/or sell your company, we are here to help. Contact us today to start a conversation.
Insights for Middle Market Leaders
Receive email updates with our proprietary data, reports, and insights as they’re published for the industries that matter to you most.