By Marlene Givant Star and Kasia Patel, with analytics by Philip Segal
Taking advantage of lower valuations and the globalization of the industry, US investors have been acquiring paper, plastic and other packaging businesses all over the continent.
Mergermarket data show that both cross-border deal count and value have increased this year, to 15 US buys in Europe worth $9.8 billion in 2019 to date. This is already an 880% increase in value compared with deal activity for all of 2018, when only nine European companies were acquired by US firms for a deal value of $1 billion.
“Europe is becoming much more active in terms of packaging M&A,” says Brent Cunningham, Managing Director and Head of Paper & Packaging Investment Banking at Raymond James.
A second investment banker notes that although some of this increase is just coincidence, overall European M&A activity this year has been playing catch-up with high US deal activity in the general industrials space, including packaging.
“Europe’s M&A market was a little behind the US so there was pent-up demand for PEs to exit,” the second banker says. “They were catching up with what happened in 2017 to 2018 in the US in terms of exits.”
While the Brexit vote in June 2016 may have had a chilling effect on M&A exits in Europe, the banker adds that this has now worn off. Overall packaging M&A activity in the continent remained relatively flat between 2016 and 2017 with 108 deals worth around $4.6 billion and 114 deals worth around $7 billion, respectively. However, 2018 saw packaging transactions in Europe jump to 128 deals valued at $ 7.6 billion, while deal value for 2019 to date has already surpassed this with $12.5 billion from 59 deals, according to Mergermarket data.
Two standout acquisitions contributed to this cross border activity: US-based Berry Plastics Group’s acquisition of UK-based RPC Group for $5.9 billion and US-based Exal’s purchase of Luxembourg-based Trivium Packaging for $2.5 billion.
European packaging firms present buyers with new names and opportunities at often lower prices when compared with US firms as industry consolidation is less advanced than in the US, notes a third investment banker.
“Companies have been selling in the US at big multiples and there’s certainly a taste and desire to get into a region that’s not as played out with some lower multiples,” he says. “It’s not surprising that companies are looking to get into a region that’s not that far along [in consolidation].”
EBITDA multiples in the US have been increasing over the last four years from a median 7.1x EBITDA multiple in 2016 to 10.4x EBITDA this year. This has been driven by high-profile deals including Warburg Pincus’ acquisition of Illinois-based protective packaging firm Pregis for 11.5x EBITDA in June, according to a Mergermarket report, and Multi-Color Corporation’s acquisition by PE firm Platinum Equity for $2.5 billion in February — a 13x EBITDA multiple according to the Mergermarket data. The data also show that median US multiples have remained consistently higher than in Europe, which has seen valuations hover between a median 8x and 9x EBITDA since 2016.
There have, however, been some stand-out European deals in 2019 so far, including New York-based Arsenal Capital’s acquisition of the health care packaging business owned by Swiss chemicals firm Clariant, for a deal value of about $310 million, which represented a 13x EBITDA multiple, according to the Mergermarket data.
According to Cunningham, valuations in European packaging have been increasing incrementally, generating heightened interest from European PE firms on par with the level of interest in the US.
He says the continuing globalization of the packaging industry is a major driver of interest in Europe, which is similar to North America in terms of its developed economy and a middle class that can afford to make discretionary purchases.
“Europe also provides a nice entry into Asia, and private equity itself is becoming more global so US firms are setting up shop in Europe and pursuing deals there alongside traditional European PE firms,” Cunningham says.
Along with heightened acquisition activity in Europe, Cunningham and the other two bankers say they anticipate strong packaging M&A will continue in North America. Cunningham says that exits are inevitable on both continents due to the high number of PE firms currently involved in the packaging space, while strategics are continuing to use M&A to drive growth.
In 2017, just 5% of US packaging deals worth $15 billion were made by PE buyers. This market share by value jumped to 44% last year and now PE buys accounted for 88% of the $6.2 billion worth of deals completed in 2019 to date.
“There is a lot of money here chasing deals so I wouldn’t expect a drop in the US,” notes one of the bankers.
As a result, deal count and value in the US packaging sector have continued to make gains, with 42 transactions worth $6.2 billion so far in 2019. This compares with 84 deals last year valued at $19.7 billion, a 31% increase in value from 2017.
Cunningham adds that private equity firms continue to be attracted to the steady cash flows and economic resilience of the end markets packaging serves, mainly consumer staples such as food and beverage and health care.
Marlene Givant Star is New York editor-sector coverage, for Mergermarket and Dealreporter. Based in Chicago, Kasia Patel is a reporter covering packaging and other industrials for Mergermarket and Dealreporter. Philip Segal is the Head Analyst for Mergermarket – Americas based in New York.