CC Blog: Global packaging M&As recover in 2021 with $19.4 billion in deals

Edited by Mark A. Spaulding

The packaging sector experienced very strong transaction volumes in 2021, according to a new report from Chicago-based Mesirow Financial. Key M&A drivers were robust demand aided by pandemic tailwinds, strong valuations and an abundance of capital among strategic and financial buyers.

Packaging companies will continue to experience elevated M&A activity in 2022, especially as consumer e-commerce behaviors and demand for sustainable packaging drive further values within the sector, and as strategic and financial buyers leverage their capital access to pursue accretive acquisitions, the study says.

M&A activity in the packaging sector started strong in Q1 2021, surpassing deal values from Q1 & Q2 2020 combined, and grew rapidly in Q2 2021. In Q3 & Q4 2021, M&A activity grew to yield the highest values in 2021 compared to the past three years (see bar chart above). M&A activity is anticipated to remain strong in 2022 for the following reasons:

  • With COVID-19 continuing to impact societies and economies globally, the packaging sector will remain a primary beneficiary, especially as changes in consumer lifestyle and shopping patterns. See my post, “How COVID-19 Changed Packaging Forever,” to learn how COVID is transforming the packaging industry and how producers can stay ahead of the trends.

  • Niche companies offering specialized packaging solutions are well-positioned to capture accelerating market demand.

  • Financial buyers are using "buy-and-build" strategies to establish industry portfolios with abundance of capital (over $1.9 trillion of “dry powder”).

  • Strategic buyers are looking for acquisitions to obtain growth, scale, diversification and synergies.

  • Pricing and leverage levels for debt capital remain favorable.

Private equity continues to be a very active M&A participant in the packaging sector, as many packaging subsectors exhibit:

  • Above-average demand growth rates, with tailwinds provided by consumer and e-commerce demands.

  • Defensive demand characteristics, especially during periods of economic downturns.

  • Meaningful presence in attractive end markets, including healthcare and food and beverage.

  • Attractive margins.

  • Relatively low margin volatility as packaging companies typically pass through raw-material cost changes.

  • Low capital expenditure requirements and high free cash-flow generation.

  • High degree of fragmentation resulting in numerous opportunities for consolidation and growth.

    There have been numerous successful     examples of private-equity firms making an initial acquisition, establishing a platform company and subsequently making add-on acquisitions. These additions increase scale, enhance manufacturing capabilities and product offerings, expand geographic presence and improve cost structure, resulting in higher valuation multiples.