Darwinism is playing out in the packaging market, and survival of the fittest depends on myriad factors, according to one industry mergers and acquisitions expert.
But companies have to be savvy about their strategies. That may mean restructuring, selling less-productive assets or trying to maximize the value of the business, according to Tom Blaige, chief executive officer and managing partner of Blaige & Co. in Chicago, who spoke at the Stretch & Shrink Film 2006 conference, held Sept. 25-27 in Atlanta.
Consolidation is an inevitable force in the global packaging world, and through 2006 the market will be affected by a laundry list of factors, including resin pricing, competition (including imports), and customers and suppliers growing in size and gaining leverage.
The sector will be affected by increasing costs of equipment and technology, new materials and technologies, and scarcity of management talent in the middle market.
Also, the packaging sector will be affected by the aging entrepreneurial population. Business owners start to look at diversifying their portfolio when they reach their 50s. That over-50 population will really ramp up through 2010.
``There's a lot of change that's occurring, and to be aware of what that is and how to work within that is important,'' he said.
Blaige did an analysis of the Top 40 flexible packaging firms in 2000 and where they stand today. According to that analysis, 40 percent of 2000's leaders no longer exist.
The list in 2000 included Tyco Plastics and Adhesives Group, which was sold to Apollo Management LP in late 2005 and now operates as Covalence Specialty Materials Corp.
Blaige said Apollo has deep pockets and is looking to expand.
``There's a record amount of deal volume in the marketplace today,'' he said.
That means it's a seller's market where valuations are high and credit is available, he added.
For anyone considering a management buyout, selling a business or taking money out of the business, ``now is a pretty good time to consider doing that.''
Companies will continue increasing in size. Blaige used the example of Sigma Plastics Group in Lyndhurst, N.J., which can process more than 300 million pounds of resin annually in its stretch film business alone.
The company is expanding several plants, and within the next 24 months is expected to process significantly more than 400 million pounds.
``[Sigma is] very actively acquiring,'' Blaige said. ``And as far as I know, every acquisition they've made has been very, very successful.
``I wouldn't be surprised if there were a couple in process right now.''