Tampa, Fla. — Continued interest in plastics packaging this year will extend what has now become a prolonged increase in merger and acquisition activity, one man close to the action believes.
Attention on the packaging sector, driven predominately by interest in plastics packaging, fueled what Jeremy Stone called robust M&A years in 2014 through 2016.
And he should know as a managing director of Sun Capital Partners Inc. of Boca Raton, Fla., the owner of Coveris Holdings Corp., a plastics packaging company.
“We seriously pursued about 50 transactions over that three-year time period. Almost exactly one third each year,” he said. And his private equity firm closed on three of those deals in a very competitive buying environment.
“From my perspective as an investor, it’s been challenging,” he said. “But as a seller, it’s been great.
“I don’t see that changing really at all in 2017,” he said.
Creating the attention on packaging is the sector’s performance during the last three recessions, where the business outperformed the broader market, generally speaking. Investors have recognized the stability of packaging, Stone said.
The packaging sector, historically, had been somewhat overlooked. Not now. “People are really interested in stability right now with all the volatility in other sectors,” Stone said.
As interest in the packaging sector has increased over time, so has the amount of money buyers are willing to pay for packaging companies, Stone said recently at the Packaging Conference in Tampa.
Buyers base their selling price on a multiple of what a company earns, and each transaction has its own particulars.
But that multiple has generally increased by what the financial industry calls a full turn, or one additional time, in recent years, Stone said. He cautioned, however, that many factors go into determining a final price.
“It’s a frothy environment,” said Jim Sykes, CEO of Amaray, a Pittsfield, Mass.-based injection molder of CD and DVD cases that’s been diversifying in recent years through acquisitions. “It’s a very ripe environment, a very competitive environment.”
Tom Blaige is CEO of Blaige & Co., a Chicago-based financial firm that advises on plastics, packaging and chemicals transactions.
Last year, he said, “Was a record year for packaging M&A both in the number of deals and dollar value of the transactions.” And plastic “was basically driving that. It’s probably 70 to 75 percent of the activity.”
“Resin-based packaging seems to be at the top for the moment because of the growth profile,” Blaige said. “Very active market.”
Blaige has seen the M&A market change over time as 15 years ago there were a lot of deals involving domestic companies. That has given ground to increased interest overseas. “Now we’re seeing transactions in the BRIC economies, so Brazil, Russia, India, China, for example. So companies are seeking growth and using M&A to realize and effect that growth,” he said.
Blaige also said a large majority of the deals taking place these days are from so-called strategic buyers, or companies that already have a standing in the industry and are looking to improve. About 75 to 80 percent of the deals are strategic, while the remaining 20 to 25 percent are by purely financial buyers, those looking to make an investment in the business.
Strategic deals, Blaige explained, can include transactions from financial buyers that previously made moves into the business and are looking to enhance existing operations.
“Most deals have some sort of strategic imperative, someone looking for opportunities to save on raw material purchases, sales force consolidation, overhead reductions and things along those lines. So strategic is really the key,” Blaige said.
Stone said he sees an interesting situation regarding investment in the packaging sector. Launching an initial public offering in the packaging sector can be challenging, he said. But packaging companies that already are public also tend to do well. “The IPO marketing is kind of funny for packaging,” he said.