Schaumburg, Ill. — Plastic packaging company valuations are not what they have been in recent times, but they are still better than what they have been.
"I would say the packaging market still remains very en vogue with investors, both strategic investors as well as the private equity community," said Brian Flynn, a director for Chicago-based investment firm William Blair.
Flynn examined the current market conditions for buyers and sellers during a presentation at the recent Plastics Caps & Closures 2022 conference organized by Plastics News in Schaumburg. He also spoke about trends in a separate interview.
Strategic buyers are those already in the packaging business that are looking to expand, while private equity firms are typically looking to buy and hold for a period before cashing out and taking profits.
While values being paid for companies are off from high-water marks before the economic downturn, they still remain more robust than what was historically paid before a run-up in recent years.
In the world of mergers and acquisitions, there is no more important word to a buyer or a seller than "multiples." These are multiples of yearly earnings that value a company's worth to those wanting to make a deal.
Generally speaking, private equity firms are seen as being willing to pay higher multiples for companies than strategic buyers. That's because private equity firms have cash they need to deploy in an effort to make money for investors. Those already in the business typically look at their ability to fund purchases more conservatively as they manage their cash flow and can take a longer view.
There was a time when multiples were routinely in the range of five, six or seven times earnings before an abundance of private equity money in recent years drove up prices routinely above 10 times earnings.
So-called "cheap money" — financing with low interest rates — has helped fuel the buying spree. But recent moves by the Federal Reserve to hike interest rates have cooled the market.