Packaging M&A Trends To Watch in 2022
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M&A activity in the packaging space remains heightened and is expected to accelerate in the coming years.Strategic and sponsor investors have been encouraged by the rise of e-commerce, a surge in consumer spending power, attractive margins, and a high degree of fragmentation, resulting in numerous opportunities for consolidation and growth. This article will briefly examine the packaging industry and why it is primed to become a target of tremendous private investment activity over the coming years.
Manufacturing Expertise Galore
When evaluating any packaging company, the fundamental question that needs to be addressed is how much control the company has over its supply chain. Therefore, any serious discussion of the packaging industry must begin with an overview of how packages themselves are produced.
Once raw materials have been sourced from either a timber farm or a recycling facility, there are several sizable operations that comprise the manufacturing process. Each operation in the manufacturing process is capital-intensive and requires specific expertise. Control over these operations is what distinguishes smaller, independent manufacturers from larger, vertically integrated companies. Independent companies (usually, but not always) operate in just one of the several operations that comprise the manufacturing process. Integrated companies, by contrast, often control every operation process, from the sourcing of raw materials to the production of finished packages, as well as every aspect of operations in between.
Supply Chain Issues Takeover Mindshare
Businesses everywhere are feeling the effects of the supply chain crisis, and packaging manufacturers are unfortunately not an exception. The lingering effects of COVID, the staggered return to normalization, and the unprecedented demand have all contributed to lead time delays and price increases.
The biggest challenge, especially for independent manufacturers, has been locking in their supply. “We are fortunate enough to have longstanding relationships with our suppliers so it has not been a problem for us,” said Don Droppo Jr., CEO of Curtis Packaging. However, “there are some sheet plants that have been fired as customers because their suppliers are stretched so thin,” he added further. In the year 2021 alone, the price of paper rose approximately six-fold, and once rare and difficult conversations with accounting have become all too common. “Companies are sick of every component of every process increasing,” said Droppo, adding that “they have practically stopped caring about cost; they just need it by Friday.”
As a result, companies that once sourced production materials using just-in-time delivery have transitioned to a “just-in-case” inventory strategy to minimize the probability of running out of critical inputs. This overbuying and hoarding has exacerbated the already surging price of paperboard and other essential production materials in the packaging industry.
Opportunities to Leverage Economies of Scale
The pandemic has changed consumer behavior, and goods are being packaged and delivered at an incredible rate and scale. Investing in a packaging company is an investment into the infrastructure that fuels the modern consumer economy.
Many investors enter the packaging space with a vision to grow consolidation. This is typically done through vertical or horizontal integration. Vertical integration requires a significant amount of capital and can be logistically difficult for a buyer who is new to the space. However, when done properly, it can alleviate many of the pain points of running a small, independent manufacturer by consolidating different supply chain components. A sentiment echoed by Harvey Rothstein, president of IC Industries, after its sale to SupplyOne Inc. (Disclosure: Triad advised IC Industries on this sale). Rothstein said, “Joining forces with SupplyOne allows us to expand our services and product lines creating new growth opportunities for our customers and our exceptional employees.”
On the other hand, horizontal integration is slightly less complicated, and it's a tested way for independent packaging manufacturers to achieve economies of scale. Further, horizontal integration gives investors the ability to cut down on costs, increase purchasing power, and potentially expand into new markets. Given the current supply chain issues, it is increasingly common for an investor to purchase a large or mid-sized packaging company and then expand it by acquiring a smaller company.
Mergers can also empower package printing companies with stronger customer service and sales organizations. After Bell Container Corp.’s sale to SupplyOne (Disclosure: Triad also advised on this sale). Arnie Kaplan, president and CEO of Bell Container said, “We are enthusiastic about joining SupplyOne’s team, and the synergies that come from combining Bell’s corrugated manufacturing capabilities with SupplyOne’s value-added distribution expertise. As part of SupplyOne’s national network, we will be able to service our customers who have locations outside of the tri-state area. We are particularly excited about SupplyOne’s sales programs, food packaging expertise and equipment automation, which will make our customers more profitable.”
In conclusion, investors’ interest in the package printing space isn’t expected to wane. This article focused on the trends affecting overall mergers and acquisitions activity in the packaging printing industry.
You might be wondering, though, whether it’s time for you to consider putting your business up for sale. The business outlook is generally bright for the packaging market. Statistics indicate that, on average, more than 36 million packages are delivered in the United States each day. Moreover, the domestic packaging industry is expected to grow at a Compound Annual Growth Rate (CAGR) of 3.6% through 2026. Furthermore, macro conditions surrounding your business may be favorable, and many private investors might be willing to pay a premium that would have been unthinkable several years ago. But the truth is, there is no simple answer as to whether or not you should sell your business.
You have put years of hard work into your business, and the decision to sell might come down to more than just pure economics. As professionals in the mergers and acquisitions space, we believe in working with a trusted partner to evaluate your specific situation and encourage you to reach out to our teams at Triad Securities and Sadis & Goldberg LLP.
About the Author:
Scott Daspin is the director of investment banking at Triad Securities. Daspin has a strong history of identifying and closing lucrative business partnerships and transactions as well as developing and launching products in collaboration with technology teams. Daspin encourages Packaging Impressions' readers to reach out to him with feedback and questions at (212) 349-1004 or via email at sdaspin@triadsecurities.com
Paul Marino is a partner at Sadis & Goldberg LLP. Marino is the head of Sadis’ private equity, corporate and M&A practice group. Marino provides legal counsel in the areas of private equity and independent sponsor funds (“Sponsors”), mergers and acquisitions for Sponsors and public and private companies, and Sponsor fund formation. Marino can be reached at (212) 573-8158 or via email at pmarino@sadis.com
Scott Daspin brings 25 years of experience in the capital markets to his middle-market advisory work. He has a strong history of creating new relationships, identifying and closing successful partnerships and transactions. Clients benefit from Scott’s diligence, along with his extensive network of strategic investors, institutional asset managers, and private equity investors who are looking for opportunities across a variety of industries. Previously, Scott served as a Managing Director at a BNY Mellon company where he was a producing manager with primary responsibilities for marketing global equity businesses. Prior to that, he served as a VP at Merrill Lynch. Scott holds a B.S. from Boston University. Scott holds Series 7, 24, 63, 65, 79 licenses and SIE.
Paul Marino is a partner at Sadis & Goldberg LLP. Marino is the head of Sadis’ private equity, corporate and M&A practice group. Marino provides legal counsel in the areas of private equity and independent sponsor funds (“Sponsors”), mergers and acquisitions for Sponsors and public and private companies, and Sponsor fund formation.
