Packaging distributor Berlin Packaging LLC of Chicago on March 3 bought All-Pak Inc. of Bridgeville, Pa., near Pittsburgh. According to Berlin, the combined companies will have sales approaching $500 million, and together will have more than 600 global suppliers of plastic, glass and metal packaging.
Plastics News reporter Dan Hockensmith on March 12 interviewed by telephone Andrew Berlin, chairman and CEO of Berlin Packaging, to learn more about the acquisition.
Q: What are some immediate results that the packaging industry will see coming out of this deal?
Berlin: The thesis for this acquisition is really, it's a growth play. It's not a financial play, so to speak. We're keeping all of the locations in place. All of the distribution centers and sales offices are in place. We're even going to be using a portion of the corporate headquarters, although, of course, many of the corporate functions are going to be integrated with our corporate headquarters in downtown Chicago. By far and away, a huge majority of the employee workforce is staying in place, as are all the field locations.
Q: What made 2010 the right time for this acquisition?
Berlin: First off, I've known the owners and the principals of All-Pak for almost two decades and have coveted their company for some time. They are among a small group of companies that are a real jewel in the industry. Periodically, we would reach out to them to see if they were ready to monetize or to join forces.
I think also, at this time, the two principals were reaching a point in their lives where they wanted to move on. I hesitate to say retirement age because I don't think either of them is really going to retire, although I think they were ready for something new. Also, with the economy turning [around], I think it's a slow turn, but I think things are relatively positive. Finally, the synergies to be realized for the two companies were terrific.
They fill out a geography that we were not in before: primarily Pittsburgh, Philadelphia, Buffalo [N.Y.], and Columbus, Ohio. In terms of helping [Berlin] achieve a more robust national footprint, [All-Pak] really helped us there. Plus, there are a lot of complementary things about the company. We have a catalog division; they have a catalog division. They sell lab supplies and we sell mostly line containers through the catalog to smaller users. So, to that extent, there were a lot of commonalities in the companies.
Both companies were very good at organic growth and had strong compounded annual growth rates. To that end, both companies' history or core competency was not so much built through acquisitions as through organic growth in the marketplace, which as we all know is the most favorable growth, because it does not involve any kind of leverage, and proves that both companies were proving themselves in the marketplace through the prospects and the customers.
Q: What percentage of the [combined business] do plastics make up?
Berlin: Plastics far and away make up the majority of what we do. We do some glass business and some metal, but I would say probably 65 percent of our sales are in plastics.
We contract out our manufacturing. To that end, we're certainly complementary to the manufacturers out there, in that we do provide a service not only to our customers, but to our manufacturers, who are typically make-and-ship operators: Obviously, they don't like to hold inventory. But our business model is that we are inventory managers, along with being experts in sourcing, expediting, design and so forth.
The long and short of it is that we're able to provide warehousing, logistics, customer service there's even a sales force, and a presence throughout the country. So manufacturers can focus their attention and their energy on being great manufacturers, and we can handle the rest. A strong manufacturer with a strong supplier like ourselves, both companies can do quite well and deliver the lowest total cost to the end customer.
Q: During the roughly two-year economic downturn, what are some of the concerns that you've heard from your suppliers?
Berlin: During an economic downturn, certainly there's a lot of attention on companies that are looking for ways to reduce their operating expenses to make up for lackluster top-line growth. With a volatile resin market, some companies are not so good at increasing gross margins, so they really have to focus on operating expenses.
To that end, working with a company like us enables a manufacturer to reduce their expenses in the area of inventory management, holding inventory and the carrying costs associated with it; but also customer service and increasing needs for better-trained sales forces; opening warehouses to serve their customers around the country; getting involved in the transportation/logistics business these are huge areas of operating expense for many, many companies. But it's already a part of our infrastructure and how we do business.
So a lot of manufacturers have focused on doing more business through us, so they can reduce their operating expenses as a consequence.
Q: What are some advantages that your customers may see from synergies between Berlin and All-Pak?
Berlin: We buy a lot of rigid packaging through the year. It's about $400 million to $425 million in purchases. So many of our customers who have a fraction of that buy can focus their attention and synergies on Berlin and achieve a lower cost of goods buying through us, but at the same time be able to manage inventories in our warehouses keeping it off their balance sheets and they can work with us and we can provide them with designs services, banking and financing services, consulting services, and so forth. There's a whole bevy of service divisions that are at Berlin and at All-Pak that now, together, the value proposition is very real.
Our customers are focusing on how to increase their net income, not just how to reduce their cost of goods. If they can work with a company that actively quantifies how much more income they make as a consequence of doing business with that supplier, then that supplier's rewarded with more business, because you're helping that customer increase their [earnings before interest, taxes, debt and amortization]. So our whole approach is very much focused on our customers' net income, not just reducing their cost of goods, which we do also. Frankly, I think that business proposition is resonating.
With the economy, the same things that are plaguing the manufacturers are plaguing the customers: Top-line growth is not as good as it used to be. So to make up for that, they're looking for ways to reduce their operating expenses. They can work with someone like us that can supplement and augment their sourcing and purchasing efforts. At the same time, we don't charge for our design services. We don't charge for our inventory management services. When we loan money for capital expenditures to our customers so they can buy machinery to increase throughput, we don't even charge them interest.
Everything we do is focused on helping the customer be more profitable and, as such, we get rewarded with more packaging business.
Q: Where do you see Berlin Packaging heading in terms of the marketplace?
Berlin: We sell packaging to consumer product companies: personal care, chemical, pharmaceutical. These markets typically do even grow in a recessionary period, though it may be low single digits at times. The fast growth that we've experienced is because we're taking market share from our competitors as well.
I was just reading, in the Wall Street Journal, about a new trend called onshoring. I think that's a terrific trend if it continues. More manufacturing coming back to the United States, in the context of onshoring, could spell some really nice economic recovery for some of our customers, who are faced with competing with like products manufactured overseas and being imported.
We're pretty bullish on the economy. As the economy turns, so does the [packaging] business. Our company did have a record year [in 2009] without the acquisition; we had a record year the year before all because this is something that we focus on.
Q: One of the big focuses in plastics has been on sustainability. It's almost a cliché to talk about Wal-Mart's sustainability scorecard, but it had a big impact on packaging. Moving beyond lightweighting to green plastics and/or bioplastics, what are your thoughts on the future?
Berlin: In terms of lightweighting and reducing packaging, I'm all for it, and maybe not for the same reasons others are. If you can reduce the amount of packaging and what goes into the landfills, that's all good. But let's face it, a lot of the sustainability effort has been a carefully cloaked effort to reduce costs which is not a bad thing. But the whole lightweighting issue, framed in the sustainability debate, was really about reducing costs.
In terms of whether the consumer is paying for green products, or green packaging, that's another matter. Years ago, Berlin had an agreement with ICI with a product called Biopol. It was a biopolymer that was unlike the resin that's mixed with cornstarch today. It was a truly biodegradable plastic that was manufactured by bacteria, of all things. It had all the properties of polyethylene, but was truly biodegradable in an anaerobic or aerobic environment.
This was truly biodegradable material: You could injection mold it into closures, you could extrusion blow mold it into bottles, and we had some early adapters to this technology. At that time this was in the early 1990s a pound [of resin] was about $8, when PE was 29 or 30 cents per pound. It was an amazing technology, but the consumer just wouldn't pay for it.
Today, I think consumers like to hear about [biodegradable plastics], and they like to know that the technology may be forthcoming. You're always going to have that hurdle to get over as to whether the consumer is actually going to invest in it. As a consequence, we really don't have that many customers asking for it. They do want sustainable packaging in the sense that there's lightweighting available, or reducing the amount of corrugate or film or secondary packaging that goes around it and certainly assist with those activities. But in terms of new plastics and the energy and expense that are required to make those new plastics, I think the jury's still out on that. Unless it's legislated, until the cost hurdle is eliminated, we don't really see a lot if interest in it.
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