Talent Talk - Jobs and Business Blog - Private equity’s take on plastics packaging M&A

. We talked about the plastics packaging business environment, and what we might watch for in the future.

Packaging companies increasingly must meet the needs of a customer base that wants to be able buy a wider range of products from their suppliers, at a competitive price. Many customers want larger suppliers, which means if you can expand your product offering, you become more important to your customer. In today's environment it may be faster and cheaper to expand your capabilities through a strategic acquisition. One specific area that many companies are looking at, according to Kocourek, is the environmentally friendly segment of the market. "There were some companies who were waiting to see if the green initiative was just a fad, but that is clearly not the case. Government regulations and big players like Walmart are driving products that are renewable, biodegradable, and use less material."

Kocourek also noted that M&A activity going forward will probably be different in the various segments of the packaging market. "The trend in the foodservice segment, for example, has primarily been to get bigger. Scale has been the main driver to the point where you could say there is frothiness in the market." The synergies are no longer mainly in the purchasing power, because everyone has that, but are now more at the Selling, General, and Administrative (SG&A) and manufacturing plant level.

One sign that consolidation in certain segments may be nearer the end of a cycle than the beginning is that companies are finding it more difficult to find good strategic fits in mid-size companies, and have moved their focus to smaller targets. Two recent examples are the Solo Cup acquisition of InnoWare, a company with around $53 million in sales, and the WinCup acquisition of Cardinal's straw business. Both of these deals were tiny in terms of a percentage of the acquiring company's revenues.

On the other hand, Kocourek notes, the flexible packaging industry and certain higher-end niche markets such as lawn and garden are still very fragmented. So will we see more consolidation in this segment in the months and years ahead? Mr. Kocourek didn't comment on that specifically, but in my opinion the answer is yes. The combination of affordable and available financing, a fragmented market segment, and improving profit margins will make acquisitions increasingly attractive for companies looking to add to their product mix or geography.

Paul Sturgeon is business manager with KLA Industries (Cincinnati, OH), an executive search firm specializing in plastics and polymer technology. If you have a topic you'd like to see discussed, a company that is growing, or other ideas for his blog, e-mail Paul at [email protected].