Packaging M&A Update – November 2022

Defensibility and E-Commerce Tailwinds Fuel Elevated Packaging M&A Activity

Capstone Partners, a leading middle market investment banking firm, released its November 2022 Packaging Update, reporting that the Packaging sector has continued to weather substantial headwinds including rising input costs and supply chain constraints. However, leading sector participants have experienced strong revenue growth due to elevated demand and the pass-through of higher raw material costs. Healthy demand has been supported by high personal consumption expenditures and corporate profits. Leading companies have also noted that demand for sustainable packaging solutions presents significant revenue opportunities, prompting packaging providers to expand environmentally friendly offerings. This has often resulted in the use of recyclable packaging solutions, mono-materials, and elevated transparency surrounding environmental footprint. Amid sector headwinds, supply chain strength, favorable end market exposure, investment in sustainability and technology, robust margins, and pricing power have been key performance indicators for sector players.

 Packaging Merger and acquisition (M&A) activity has surged through year-to-date (YTD)

As supply shortages and rising costs resonate across the value chain, packaging converters must actively reassess relationships with equipment suppliers. The sector-wide practice of just-in-time ordering has been disrupted by extended lead times and material availability. In order to improve efficiency, converters can diversify suppliers, analyzing prices across the market and purchasing from the supplier with the best price and delivery profile. Converters can also build relationships with vendors, allowing them to monitor upstream conditions involving inventories and prices.

Merger and acquisition (M&A) activity in the Packaging sector has surged through year-to-date (YTD) 2022, outpacing the same period in the prior year. Notably, 2021 was a record year for packaging transactions with 195 deals announced or closed. The proliferation of M&A volume in the Packaging space has occurred despite slowing activity in the broader middle market. Private strategics have remained active as companies aim to diversify offerings, increase market share, and capitalize on economies of scale. Private equity (PE) has continued to deploy capital to the space, attracted to the sector’s recession resilience and favorable growth prospects. Financial buyers have utilized buy-and-build strategies to establish platforms. PE-backed companies have displayed a particularly robust appetite for players that serve growing end markets.

Also included in this Packaging Update:

• Commentary on the operating performance of leading sector players.
• A segment highlight investigating growth drivers and headwinds in the Paper Converting market.
• Summaries of recent Packaging deals exploring the key motivations behind the acquisitions.

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 Market trends 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.