Austin, Texas — Thomas Blaige has been making deals in the plastics industry for three decades. He's seen some things.
And what the CEO of Blaige & Co. of Chicago is seeing today is a continuation of what has become a yearslong mergers-and-acquisition trend in the packaging industry
"The consolidation wave, which I call the 'Great Consolidation Wave,' is really affecting the viability of small-, medium- and large-sized converters around the word," Blaige recently said at The Packaging Conference in Austin.
"Packaging converters are hot commodities. There's a lot of demand for packaging converters, and it's being driven by the accelerating global industry consolidation," he said. "So I think everybody can have a sense of what that is. But all of you, whether you are in a technical position, business development or a CEO/owner of a company, this is important to you. Why? M&A is becoming so persuasive that in order to advance and grow within your organization, you need to have M&A skills," Blaige told the crowd.
Blaige said there have been seven distinct periods of increased M&A activity since 1895, and the current period is now in its 14th year. Over the past 130 years, the average upcycle has been seven years, he said.
"It really is unprecedented," he said about the current wave of M&A activity, noting it is probably due for a slowdown at some point — but not right now.
Blaige said 80 percent of the deals in the packaging industry currently are strategic buyers. Those are businesses already operating in the industry or financial companies that have an investment in the sector.
"Sellers need to understand what strategic elements buyers are looking for, and buyers need to understand what strategic elements within a seller are most valuable," he said.
Blaige said 82 percent of packaging companies have less than $100 million in annual sales and 72 percent are under $50 million.
"The packaging industry is really a middle-market industry," he said. And there are thousands of such businesses around the country that are ripe for consolidation.
Blaige said there is both a carrot and a stick — or a push and a pull — at play when it comes to M&A activity these days.
"What's attracting companies to packaging? Three big issues. Extreme fragmentation is driving up valuation for all sectors," he said.
A second factor is that a large-cap consolidation trend has mostly played out in recent decades, and dealmakers are moving downstream to target more small- and mid-cap companies, Blaige said.
And a third factor, he said, is that global customers and brand owners are now demanding their packaging companies create expanded manufacturing footprints and provide multiple products that involve different processes.
There also are forces in play that are affecting packaging companies' ability to compete these days. "There's four factors that are putting a lot of pressure on small and midsized companies, causing them to think about finding a big brother, finding a merger partner, finding capital in order to survive and thrive over the next five, 10, 15 years," Blaige said.
Those factors include customers and brand owners demanding suppliers with scale, a need to expand offerings that require investment, and increasing pressure regarding environmental, social and governance issues, he said.
The fourth factor is succession planning for family-owned companies.
With the emphasis on M&A these days, Blaige said, a company looking to sell needs to break through the clutter to maximize the profit.
"It's not really selling the company; it's branding. You've got these small and midsized companies who are known to their competitors. They are known customers and suppliers. But nobody else really knows them," he said. "You are really creating a brand in the M&A market. ... It's a Shark Tank universe. The best story wins," Blaige said.
"You don't want to be selected. You want to be selective," he said.