UK and Ireland Packaging M&A saw 27 transactions in 2017, and a further 16 deals completed in the first half of 2018, the latest research from Livingstone has revealed. Whilst this is a decrease from the recent highs exhibited in 2016, deal flow and valuation levels continue to be robust across the sector.
The international M&A and Debt Advisory firm’s research also found that strategic acquirers rather than private equity firms accounted for the majority of UK deals in the past eighteen months, with corporates such as DS Smith, Mondi and Bunzl all completing major deals in the past 18 months. Publically traded packaging companies continue to remain slightly above their long run average, supporting trade acquirer’s appetite to pursue M&A as a means to deliver synergies and to tap in to rising demand from certain end-sectors such as e-commerce, food and automotive, in particular.
Despite the headwinds posed by Brexit, the UK continues to be seen as an attractive market for international acquirers. Recent examples include Hong Kong-based GPA Global acquiring MW Luxury Packaging in November 2017, and America’s Berlin Packaging acquired H. Erben, a Hadleigh-based supplier of closures, packaging, and packaging equipment in March 2018.
Valuation levels reflect the period of consolidation experienced in recent years, particularly evident in the paper packaging market, averaging 9.8x EBITDA in 2017 and 10.3x in H1 2018. As with previous years, valuation metrics can be skewed by one or two large deals, for example RPC’s acquisition of Leticia Group for £511m in February 2017.
The latest findings suggest that the period of consolidation witnessed in recent years is therefore continuing and, in 2018, this has been particularly evident in the paper packaging market where Europe’s largest paper packaging players, Smurfit Kappa, DS Smith and SAICA have all been actively expanding their geographical footprint. 2018 has also seen the ongoing development of a number of trends including: the growing use of e-commerce compatible packaging materials such as lightweight protective packaging and boxes; retailers continued adoption of shelf-ready packaging solutions; and greater demand for sustainable packaging that caters for end-users desire to minimise environmental impact. The latter is already beginning to fuel M&A in this space – as illustrated by Duni’s 2018 acquisition of sustainable disposable packaging provider, Biopac.
Barry Sheehan, Director at Livingstone, commented, “The high level of deal activity in the packaging sector demonstrates the eagerness of strategic acquirers, to use M&A to generate synergies, increase market share and acquire technical know-how. These latest findings suggest that the M&A outlook for the remainder of 2018 remains, in our view, very positive.“Private Equity, although perhaps less active in the UK over the last 18 months, when compared to previous periods, continues to play an important role in the wider packaging M&A landscape. Indeed, because packaging companies tend to be linked to less discretionary end-markets like food and beverage, the industry has historically been seen as having strong defensive characteristics. This fact can be very appealing to certain financial sponsors, especially if combined with an attractive business plan and a strong management team.”
