ITASCA, ILL. — This year is shaping up to be the hottest mergers and acquisitions market since 2007, when deals reached an all-time high, according to one participant who spends a lot of time looking at packaging firms.
With plenty of cash sitting on the sidelines at both private investment firms and on corporate balance sheets, Michael Nelson, an investment partner with the Pritzker Group of Chicago sees lots of folks trying to spend that cash.
But while Chicago's Pritzker Group is out there beating the bushes for deals of its own, don't expect the company to make a deal simply to, well, make a deal.
Company valuations have been increasing in recent years as investors go looking for places to spend all of that money. Nelson, at the Technology Forum to help kick off the fifth annual Plastics Caps & Closures Conference in Itasca, said there's about $1.4 trillion of cash on corporate balance sheets “looking for a home” and another $1.2 trillion in private equity funds doing the same.
“You have a cash-rich environment,” he said Sept. 15. “It's a simple supply-and-demand equation.
“Not quite to where we were in 2007, but it's clearly the second-highest year on record since they were measuring M&A activity,” Nelson said.
And the packaging sector, he said, mirrors what is going on in the overall M&A market, he said.
“It's a fantastic time to be a seller,” he said he said at the forum organized by Nova Chemicals Corp. The entire conference is sponsored by Plastics News.
Packaging is a key area of investment for the Pritzker Group, which currently owns three packaging companies. They include Technimark LLC, a $500 million global custom injection molder that primarily serves the consumer packaged goods industry.
Pritzker Group is not a private investment firm, but the company does make investments. The group is led by Tony Pritzker and J.B. Pritzker, two members of the famous Pritzker family that made billions thanks, in part, to Hyatt hotels. They use their own money to invest and this allows them to take a longer view than private equity firms using somebody else's money.
And that view has Nelson and the Pritzker Group being more selective in an overheated market.
“We're participating because the best assets always come up for sale when it's the best time to be a seller. But we're being very picky. And the only time in which we're engaging our companies to go look at add-on acquisitions is when they have a real fit with our long-range strategic plan: a new geographic presence that we wanted to be in, a new product line, or something that's really going to kick-start the innovation within our business.”
Companies and private equity firms are compelled to pay higher prices for acquisitions not only because of all the cash they are holding, but also due to a need to grow beyond the 2 percent or so of organic growth the economy is providing these days, Nelson said.
Publicly traded packaging firms also are enjoying high stock prices these days, which is giving them a strong currency to go out and make deals. And then those same companies are being rewarded by Wall Street, which is pushing up the stock prices even higher when those deals close, Nelson said.
Nelson told members of the crowd that they won't hear any predictions about when the market might start to cool. “Because any time we try to do that, especially as it relates to the M&A market, we're proven wrong. But what you can do is look at history and see where we are at in terms of the context of that history,” he said.