Q1 M&A Update
- Valuations continue to remain strong across the packaging industry, despite economic uncertainty, looming economic questions, and evidence of a slight slow down in dealmaking; as a result, companies with solid fundamentals can attract premium valuations
- Private equity was responsible for much of the transaction volume in 2021 and 2022 with packaging add-ons and roll-ups,, however, in Q1 2023, they slowed their purchases significantly, driving the overall middle market deal volume down
- Sustainability and consumer convenience remain significant areas of interest for M&A activity, especially in the flexible and rigid plastic packaging verticals
- Following two full years of financial performance since the 2020 Covid-19 pandemic, companies now have a strong foundation to explore exit or transition plans, especially as aging business owners look to retire
Q1 Industry Update
- As inflation and supply chain issues subside, companies are turning to more growth and strategic initiatives, rather than solving backlog and supply problems
- While labor shortages and quality of skilled workers remain important cost concerns, declining energy input costs are working their way through the system
- Automation remains a key operating lever in the industry, as companies look to address labor demand through technology
- Climate and environmental regulations in Europe, as well as geopolitical concerns in China, have increased the focus on US packaging capabilities
Where Are Packaging Subsectors Valued? (EV/EBITDA)
Source: TKO Miller's Proprietary Middle Market Packaging Index
The BUZZ Around ChatGPT: But is it Accurate?
ChatGPT is all the buzz. You see it in the news and cringe when you see kids using it to do their schoolwork. We're curious to know how this phenomenon will impact packaging, so we figured we'd give it a try
ChatGPT Search: "Trends in Consumer Packaging"
There are several notable trends in consumer packaging that have emerged recently:
- Sustainable Packaging: Consumers are increasingly demanding more eco-friendly packaging options. Brands are responding by using biodegradable or compostable materials, reducing the amount of materials used, and designing packaging for recyclability.
- Minimalist Design: Brands are opting for simpler packaging designs that focus on typography and use of color to grab attention. Minimalist packaging also reduces waste and is easier to recycle.
- Personalization: Brands are using digital printing technology to create customized packaging that appeals to individual consumers. This allows brands to create a unique experience for each customer.
- Convenience: Consumers are looking for packaging that is easy to use and transport. Single-serve and portion-controlled packaging are becoming more popular, as well as resealable and easy-open packaging.
- Health and Wellness: Packaging is being designed to emphasize the health benefits of the products it contains. This includes using transparent packaging to showcase the ingredients and nutritional information.
- Smart Packaging: Brands are incorporating technology into their packaging, such as QR codes and NFC tags, to provide consumers with more information about the product, its origin, and its sustainability.
Recent Packaging News
Data Shows Plastics' Chronic Labor Shortage Abating
According to the latest Job Openings and Labor Turnover Survey (JOLTS) from the Bureau of Labor Statistics, the total number of nonfarm job openings fell to a seasonally adjusted level of just over 9.9 million in February. We are closer to a healthy equilibrium in the U.S. labor market than we were a year ago, but we still have a long way to go. How long it takes us to get there — and whether the Fed and the other policymakers can facilitate getting us to this equilibrium without creating another big crisis — is still an open question. The pressure on plastics processors generated by the chronic labor shortage will continue to abate in the coming months. This will come from a gradually improving situation in the labor market, but for many, it will also come from a decrease in demand from their end markets. [LINK]
COVID-19's Long-term Effects Change Expectations for Plastics Industry
The impact of COVID-19 might be waning more than three years after the pandemic first struck, but there are some fundamental changes in the workplace that have taken hold. The early days of lockdowns brought many nonessential businesses to a halt amid widespread fears of the unknown. And a return to normalcy, or at least a new normal, means plastics companies no longer rely on the same old game plan to get through the day, according to a panel of company officials at the Plastics News Executive Forum. [LINK]
Coca-Cola, McDonald's, and M&S Food Detail Sustainability Push
Speaking at a media event organized and hosted by Coca-Cola Euro-Pacific Partners (CCEP), Joe Franses, VP of Sustainability at CCEP, said in the last five years the bottler has invested to make a significant shift away from using oil-based virgin plastic. McDonald’s has said that by 2024 all its packaging should be renewable, recycled or certified, and all the waste in its restaurants should be recycled or composted. M&S Food has a target to remove a billion units of plastic by 2027 and re-evaluate every SKU, while protecting the shelf-life and stopping food waste. [LINK]
Packaging Market Performance vs S&P 500
Packaging Valuation Index
Source: TKO Miller's Proprietary Middle Market Packaging Valuation Index
Select Notable Packaging M&A Transactions | Q1 2023
TriMas Packaging, a manufacturer of a diverse set of products primarily for consumer products, aerospace, and industrial markets, has acquired Aarts Packaging, a provider of packaging solutions for the beauty, food, medical, and pharmaceutical end markets. This acquisition will broaden TriMas Packaging’s presence in beauty applications, adding a variety of cosmetic dispenser closures and beauty packaging design solutions.
Inovar Packaging Group, one of North America’s premier flexographic, digital, and emerging hybrid printing technology companies, has acquired Amherst Label, a custom label manufacturer that specializes in digital, flexographic, and screen printing for a wide variety of industries. This is Inovar’s ninth platform company and adds to its existing manufacturing footprint. The Company is executing on a strategic plan for growth, both organically and through acquisition, in partnership with owners and management, building a regionally based prime label business across North America.
Summit Plastics Inc., a provider of custom polyethylene film and bags, has acquired Fredman Bag, a fifth generation family-owned manufacturer of flexible packaging, printing, and converting. Summit Plastics, based in Summit, MS and owned by LongueVue Capital, has now made three deals since the private equity firm purchased the company in 2020. This acquisition further expands Summit's product offerings and geographic presence.
About TKO Miller
TKO Miller, LLC is an independent, advisory-focused, middle-market investment bank. With over 130 years of collective transaction experience, TKO Miller provides merger and acquisition and financial advisory services for privately-held and private-equity-owned businesses, with a special focus on family-and-founder-held businesses.
Flexible Packaging is one of TKO Miller’s core industry focuses, along with Consumer Products, Industrial Services, Manufacturing, Business Services, and Healthcare. After advising numerous flexible packaging and printing companies on M&A and financing transactions, TKO Miller’s professionals have developed deep industry knowledge and a broad contact network that accompanies their transaction expertise with privately-held companies.
TKO Miller aims to bring value to clients by combining outstanding people with a results-oriented, flexible approach to transactions. Our services include company sales, recapitalizations, asset divestitures, and management buyouts. TKO Miller has a generalist focus and has served clients in a wide range of industries, including manufacturing, business services, consumer products, and industrial products and services. For more information, visit our website www.tkomiller.com