“The packaging M&A market had a record year in 2007 despite the market challenges in the latter part of the year,” says Doug Lawson, managing director and head of BMO Capital Markets’ packaging practice. BMO Capital Markets, the investment and corporate banking arm of BMO Financial Group, has released its latest report: Mergers & Acquisitions in the Packaging Industry: Annual Deal Review.
The report provides a comprehensive review of M&A activity in the global packaging industry in 2007. It examines M&A activity by packaging sector, by strategic and financial acquirers, by geography and transaction valuations.
“For much of 2007, there existed very favorable conditions for M&A, including a strong economy and favorable credit markets,” Lawson says. ‘These factors, combined with healthy balance sheets, significant availability of private equity capital and a strong rationale for continued consolidation, drove the record M&A levels in the packaging sector.”
Lawson adds that deal flow slowed in the latter part of 2007 and is down in the first two months of 2008 versus the prior year. “There continues to be interest in the sector, however, and a strong rationale for continued consolidation remains.”
Highlights of the report include:
• The number of transactions in the packaging industry continued to increase to 386 deals, representing a 10 percent increase year-over-year from 351 deals in 2006. The number of deals had not been as high since 2000, when there where 385 transactions.
• Aggregate packaging value reached US$32.6 billion for the 137 transactions with reported values.
• The median reported packaging transaction value was US$35.3 million in 2007. This represents a significant increase over the median value in 2006 of $21 million. In addition, nine of the 10 largest reported deals exceeded US$1 billion in Enterprise Value versus only two of the 10 largest reported deals in 2006.
• Strategic and private equity acquirers (including their portfolio companies) were all active in the packaging industry in 2007, accounting for 66 per cent and 34 per cent of transactions, respectively. Overall, public companies account for the greatest proportion (34 per cent) of packaging acquisitions.
• In 2007, strategic acquirers increasingly looked outside of the US and Europe for acquisitions as only 64 percent of target companies were located in North America or Europe in 2007, versus 74 percent in 2006.
• In 2007, the number of deals in the packaging industry was relatively evenly dispersed between the rigid packaging sector (27 percent), flexible packaging (26 percent), and paperboard packaging (22 percent). The remainder of activity was split between the label, machinery, and other packaging sectors.