Even with the economic climate and uncertainty over resin prices, the flexible plastics packaging market is ripe for significant consolidation, said Thomas Blaige, president of Blaige & Co. LLC in Chicago.
Unlike the glass bottle, food can and beverage can markets, where the top three companies command 78-91 percent market shares, the top five companies in flexible plastic packaging only have a combined 32 percent share, Blaige said in a speech at Packaging Conference 2009, held Feb. 2-4 in Las Vegas.
Blaige is convinced that flexible packaging mergers and acquisitions will increase. Regional entrepreneurial companies will survive, but companies in the middle are being squeezed, he said.
Blaige said the number of plastics packaging M&A deals in 2008 dropped to 103 from 140 the year before, but he expects a reasonably good pace of deals in 2009, even in the difficult economic environment.
Deals are getting done, Blaige said. Companies that have a strong market position, technology or brand are always coveted by large global companies and always in demand. In addition, if you are a leader and there is value to your products, that also attracts interest.
Blaige added that he expects a number of distressed deals in situations where banks are withdrawing their credit lines.
The expected consolidation in the flexible packaging market doesn't necessarily mean a reversal of the past three years, when the number of rigid plastic packaging deals outpaced flexible packaging deals 60 to 43 in 2008, 87 to 53 in 2007 and 72 to 66 in 2006.
There is a convergence between flexible and rigid suppliers, Blaige said, with more than 70 percent of the acquisitions done for strategic reasons.
Companies are looking for complementary acquisitions, new brands or franchises, or new technology that they can apply to their own business, he said. They are also looking at geographic market expansion to expand their global reach to new global customers.
Blaige had several suggestions to help companies position themselves to get the best price for their businesses:
* Detail and document strengths and opportunities.
* Focus on potential and synergies, not on past accomplishments.
* Involve key managers and get them to own the process.
* Showcase your team's vision and capabilities.
* Don't miss your firm's targeted budgets.
Blaige said companies that are potential acquisition targets should identify and address negative issues upfront, instead of hiding them. Just explain them from a positive approach, he said. Know who you are and where you want to go.
The conference was co-sponsored by PET industry consultants SBA-CCI Inc. of Jacksonville, Fla., and Plastic Technologies Inc. of Holland, Ohio.