Supply chain puts consolidation pressure on packaging sector

By Jim Johnson
Senior Staff Reporter

Published: February 13, 2014 3:20 pm ET

Image By: Blaige & Co. Thomas Blaige

Related to this story

Topics Packaging, Mergers & Acquisitions

ORLANDO, FLA. — Plastic packaging companies, feeling squeezed from both their suppliers as well as their customers, are looking at mergers and acquisitions as a way to stay relevant.

Plastic packaging deals dipped last year compared with the year before, but the number still was within the historic range of annual transactions since the turn of the century, according to Thomas Blaige, CEO of Blaige & Co., a Chicago-based investment banking firm focused on plastics, packaging and chemicals.

“In terms of what’s driving this M&A activity, it’s really the global consolidation. What does that mean? Well, there’s a lot of pressure on converters to consolidate. Why is that? Because the supply chain is consolidating, so you’ve got pressure upstream, downstream and from competitors as well,” he said recently The Packaging Conference in Orlando.

Packaging firms have some enormous companies on either side: both their suppliers as well as their customers who use the packaging to sell goods. And with consolidation occurring on either side, packaging companies are feeling the need to become larger and more diverse themselves.

“Converters are relatively small companies. You’ve got huge suppliers. You’ve got huge customers. And so, naturally, as they are growing and becoming stronger. You need to determine strategy to maintain your own strength and influence within the supply chain,” Blaige said.

Federal capital gains tax increases for 2013 helped pull deals into 2012 that would normally have closed last year, dampening the transaction total to some degree. Still, last year was still a solid year, conference attendees were told by panel of merger and acquisition experts.

“I think 2103 was a solid year for packaging deals. I think it was probably a better year for packaging than it was for M&A in general, which was down a little bit probably in 2013,” said Brett Snyder, president of Nicolet Capital Partners LLC, a private equity firm based in Chicago. “I think it was a steady year.”

“In 2014, at least in the early going … there are several fairly large transactions in the market right now, companies between $30 million to $75 million of operating income. I can think of a half a dozen off the top of my head that are in the market or coming to market shortly really across all areas of plastics,” he said.

“So I think it’s setting up to be a very good year for packaging,” Snyder said.

Nicholas San Filippo IV is a partner with Lowenstein Sandler LLP in Roseland, N.J., co-chairing the law firm’s corporate finance and securities practice group.

“The only thing that gives us some pause for concern is the uncertainly of the markets in terms of the stock markets,” San Filippo said. A downturn in the stock market could have a real impact on slowing down merger and acquisition activity, he said.

Jay Radtke, a director at private equity firm Mason Wells of Milwaukee, sees the increased level of transactions in recent years due to tax law changes continuing to have an impact on the number of deals involving family owned and privately owned businesses this year.

“I think that’s eventually going to change over the next five years with a lot of the retiring baby boomers,” he said. “I think that’s a very positive backdrop for packaging M&A in general.”

Another dynamic going on right now involves the “red hot” financing markets that are providing the kinds of cash to help boost valuations higher than typical. “I think any solid packaging business has a lot of options. And that is obviously pushing values,” Radtke said.

“I would say the multiples are a turn higher than what they’ve been historically. The world of packaging, one of the reasons we like it, is it’s relatively easy to understand. It’s very consistent. The multiples have tended to be in that 6- to 8-times range. I think right now you’re seeing a turn higher,” Radtke said.

“So it’s not a bad time to be thinking about selling your business right now if you’ve got a good story out there. There’s a lot of interest for packaging businesses right now,” he said.

“With the loosening in the credit markets, that probably helps that multiple come up just a little bit,” said Edwin Parkinson, president at Blaige & Co.

Blaige reported 138 plastics packaging deals in 2013, down from 169 in 2012.


Comments

Supply chain puts consolidation pressure on packaging sector

By Jim Johnson
Senior Staff Reporter

Published: February 13, 2014 3:20 pm ET

Post Your Comments


Back to story


More stories

Image

Lund adds to aftermarket auto products portfolio with buy of Bushwacker

January 29, 2015 2:49 pm ET

Lund International Inc. has expanded its portfolio of plastic aftermarket vehicle accessories by acquiring Bushwacker Inc.    More

Image

Profit dips at Bemis Co. Inc.

January 29, 2015 2:04 pm ET

Profit dipped for Bemis Co. Inc. for all of 2014, but were up during the fourth quarter in what the company's leader called a “pivotal year....    More

Image

Chemtrusion, Mytex Indiana compounding plant set for expansion

January 29, 2015 1:35 pm ET

Japanese and American partners in a compounding plant in Indiana plan to expand the facility.    More

Image

Plastics News Now: Losing weight with style, plastics in the Dragons' Den

January 29, 2015 6:00 am ET

A 19-year-old entrepreneur brings business to a U.K. injection molder after winning support on TV's Dragons' Den, auto suppliers combine...    More

Image

African equity fund invests in Kenya's General Plastics

January 28, 2015 4:24 pm ET

An African investment fund specializing in agriculture has invested in Kenyan packaging firm General Plastics Ltd. to provide funds to expand in the r...    More

Market Reports

Plastics in Automotive: Innovation & Emerging Trends

This special report newly released by PN and sponsored by The Conair Group examines current trends in the use of plastics in automotive, materials innovations and the changing landscape. It includes a review of legislative/regulatory activity impacting vehicle development and lightweighting, market opportunities & challenges for mold and toolmakers, innovative design strategies being implemented by major OEMs and suppliers, as well as a review of key indicators in Canada, Mexico, Brazil and China.

Learn more

Plastics Recycling Trends in North America

This report is a review and analysis of the North American Plastics Recycling Industry, including key trends and statistics based on 2013 performance. We examine market environment factors, regulatory issues, industry challenges, key drivers and emerging trends in post-consumer and post-industrial recycling.

Learn more

Injection Molding Market Analysis & Processor Rankings

Plastics News BUNDLED package contains our in-depth Market Analysis of the Injection Molding segment. You will gain keen insight on current trends and our economic outlook.

As a BONUS this includes PN's updated 2014 database of North American Injection Molders RANKED by sales volume. Sort, merge, mail & prospect by end market, materials processed, region, # of plants and more.

Learn more

Upcoming Plastics News Events

February 4, 2015 - February 6, 2015Plastics News Executive Forum 2015

June 2, 2015 - June 3, 2015Plastics Financial Summit - Chicago 2015

September 16, 2015 - September 18, 2015Plastics Caps & Closures - September 2015

More Events