Ongoing packaging M&As threaten survival of small companies

Packaging continues to be one of the most fragmented industry sectors, which may be why Thomas Blaige, Chairman and CEO of Blaige & Co. (Chicago), told attendees at the recent AWA Alexander Watson Associates IMLCON and IMDCON event that they can expect ongoing “huge consolidation” in the future.

That fact holds true for all links in the supply chain, “making it a good thing to be aware of the trends in this market,” Blaige said. “We’re seeing global expansion in packaging, and deal volume is way up, having doubled from 2001 to 2015. There were 200 deals in 2001/2002, and between 500 and 600 deals in 2015. International deals were up 48%.”

Blaige noted that in past years, strategic deals represented 10%, with 5% of the deals financial in nature. “Today, 40% of the deals are financial with 61% strategic buyers,” he said. “Synergies are key, and strategic consolidation is changing the competitive landscape.”

Thirty percent of the top 50 packaging molders were engaged in consolidation, which Blaige called “tremendous” among the top players in both injection and blowmolding. Processors who have access to funding are the ones most involved in M&A activity, he added.

Some of the deals that Blaige mentioned include Constantia Flexibles Group, of which premium label-maker Verstraete IML is a subsidiary, a manufacturer of flexible packaging and labels to market leaders in food, pet food, home and personal care, and beverages. Verstraete IML USA just announced a $20 million expansion of its facility in Clarksville, TN.

In June, Greiner Packaging acquired a 51% stake in Turkey-based Teknik Plastik from the Ozata Group.

CCL Industries, of which CCL Labels is a part, has done 14 deals in the past two years.  

There is also, of course, Berry Plastics, a high-profile packaging company that has been very active in acquisitions. The latest announcement was the acquisition of AEP Industries Inc., a manufacturer of flexible plastic packaging films. Blaige noted that Berry has done 40 deals since 1990.

Novolex has also been a large acquirer in recent years, purchasing companies such as Hilex Poly, Duro Bag, Packaging Dynamics, Wisconsin Film & Bag,and Heritage Bag Co. Less than two weeks after the IMLCON/IMDCON conference, majority owner Wind Point Partners and TPG Growth, minority shareholder, announced the sale of Novolex to the Carlyle Group. Terms were not disclosed, but the transaction is expected to close before year end. “This is the next big step for Novolex and we could not be more pleased to join the Carlyle Group,” said Stan Bikulege, Chairman and CEO. “We are deeply grateful to Wind Point Partners and TPG Growth for their steadfast support and leadership over the last four years. We would not be where we are today without them.”

Novolex will retain its name and become one of the companies in the Carlyle portfolio of investments. There will be no interruption of its operations and the Novolex management team will remain in place, said the November 28, 2016, announcement. Equity for this investment will come from Carlyle Partners VI, a $13 billion U.S. buyout fund.

Of the decision to sell Novolex to Carlyle, Alex Washington, Managing Director, Wind Point Partners, said, “Since we acquired Novolex in 2012, together we have achieved our value creation plan for Novolex by growing revenue from $500 million to over $2 million and increasing profitability through new products, conversion cost reduction and five transformative add-on acquisitions. This has been a great partnership and we wish all involved in this transaction continued success.” 

All of these recent mergers and acquisitions—and the ones that are expected to come given “a huge war chest” of uninvested capital—means that companies in the packaging segment are getting larger and becoming market leaders. “About 10 to 20% of that universe is rapidly gaining share and will have market domination,” said Blaige. “Selling multiples are back to near record levels, averaging 9.5% EBITDA, and consolidation will continue at an accelerated rate.“

All of that will make it more difficult for smaller companies, who are the “followers” in Blaige’s world. “We’re looking at these small, entrepreneurial firms with fiercely independent owners—about 10 to 20% of the universe—rapidly losing share,” Blaige said. “The big question is, can these small companies survive the onslaught of the majors?”