Any management team hoping to attract the attention of a private equity (PE) sponsor or corporate investor could do worse than taking a cue from Europe's packaging sector.
Just ask Asim Mullick, co-head of industrials at Barclays, who had this to say to Mergermarket recently: “Packaging has proved more resilient than sceptics had predicted with companies trading at all-time highs, largely thanks to the sector’s robust nature, loved by both public and private markets.”
Despite a global pandemic-induced downturn in M&A activity, the packaging space counted 100 transactions in 2020—only six fewer than the previous year—and 29 deals have already been announced in 2021.
The PE side’s been busy as well, with 22 buyouts of European packaging companies in 2020 and five in 1Q 2021. Sponsors are reportedly interested in CVC Capital’s divestiture of Swedish carton board and flexible packaging company, AR Packaging, as well as China Jianyin Investment’s exit from SGD Pharma, the French pharma packaging firm.
Think inside the box
Why all this big love for humble packaging? Like logistics, the sector has benefitted from the surge in ecommerce activity during the pandemic as more consumers were forced to shop from the (dis)comfort of their own homes.
Dependable cash flows like these are the holy grail for PE investors, which explains why they have come flocking.
Another attraction is the fragmented nature of the industry, which leaves huge potential for consolidating multiple mid-market firms into one biggie.
And then there’s sustainability. Europe is the driving force of the environmental, social and corporate governance agenda globally. Many larger packaging corporates are seeking bioplastics deals to give them the materials and products they need to comply with incoming EU legislation aimed at cutting plastic packaging waste. For example, Aquapak Polymers, a UK-based developer of biodegradable polymers, partnered with DS Smith to work on a next-gen range of sustainable packaging.
Naturally, a sector that fundamentally produces waste would be one of the first areas of attention for the EU, but sustainability is no fad. Companies that produce sustainable products by sustainable means are going to stay in high demand, possibly until they become the norm.
This mentality should be at the heart of corporate strategy, not only to stay on the right side of tightening regulations and legislation, but also for commercial reasons. A growing number of PE firms in Europe are beginning to either seek B Corp-certification of social and environmental performance in their targets or bringing their investee companies up to scratch by encouraging them to become B Corps-certified.
Top five European packaging deals, 2019-2021 (YTD)
