North American packaging companies should not expect major growth in 2011, two industry watchers said at the recent Pack Expo trade show.
In an interview Nov. 1 at the Chicago show, Parmesh Bhaskaran, a director in the Chicago office of consulting and turnaround firm AlixPartners LLP, and Dan Frich, a director in the company's Detroit office, laid out their vision of the next six to 12 months.
Industry executives at the show projected growth of 2-3 percent in packaging this year and both Bhaskaran and Frich said that seems reasonable. Asia and Europe will continue to be strong markets, they said.
It appears that there's not going to be a big hockey-stick profile going forward, cautioned Frich. [Companies] are still going to have to stay focused on their cost structures [and] doing the right business deals. When they are doing acquisitions, they have to make sure they're doing a lot of upfront homework and due diligence to make sure they are getting themselves into a good position.
Bhaskaran agreed that investigating potential acquisitions thoroughly is more important now.
In the past, when company A has gone out and acquired company B, there's been enough fat in there that they could skim that off quickly and get up to the multiples that they wanted to. But that fat is not so obvious with everybody operating lean. So companies have to be even more certain that they do due diligence, otherwise it's going to be difficult for them to get the synergies that they want, he said.
Bhaskaran remains bullish on the prospect of Chinese and Indian companies that are flush with cash seeking inroads into the North American market through mergers and acquisitions.
They think this is a great growth market, he said. Buying a small company [in North America] opens an opportunity for [Asian firms] to do business with large retailers like Wal-Mart and other companies which are just going to countries like India. It can potentially represent huge business opportunities for them in India to be able to say they are doing business with Wal-Mart in North America when Wal-Mart comes to India.
Wal-Mart's first store in India, a joint venture with Bharti Group called Best Mart, opened in 2009.
On the subject of Wal-Mart Stores Inc. and its packaging scorecard system, the two AlixPartners directors were clear: Packaging-reduction measures are here to stay, and actually help firms meet sustainability goals.
We have a lot of clients who work with Wal-Mart as suppliers. They see a lot of benefits from that relationship, in addition to just pure volume, Frich said. One of the things you get from a company like that is [that] you know what the rules are. It's always black and white. If nothing else, Wal-Mart is very transparent about what they want.
Both directors of the Southfield, Mich., firm said private equity players and strategic buyers are likely to close sizable M&As in 2011.