Flexible Packaging Newsletter - Q2 2020

TKO Miller Market Analysis 

The Flexible Packaging Industry is identified as a key player as consumers and other sectors adapt to the COVID-19 outbreak.

In a recent article, McKinsey & Company reported on the $900 billion per year worldwide flexible packaging industry. [LINK]

The COVID-19 outbreak has led to a sharp decline for some applications and an increased demand for others.

As U.S. consumers have radically shifted their behavior, packaging applications focused on e-commerce, healthcare, and food are seeing increased demand.  On the flip side, as the restaurant and hospitality industries nearly grind to a halt, packaging application focused on these industries are suffering. Demand for non-food and premium-good packaging was also hit hard, with stores closing as consumers cut back on their spending.

While the packaging industry survived the period of initial demand shock, the impact of COVID-19 is presenting many packaging companies with a new set of opportunities and challenges. Adjusting to and understanding new behavioral patterns among consumers, both short term and long term, will require agility and flexibility among the industry’s business leaders.  McKinsey lists e-commerce, changing consumer preferences, and retail margin compression as three of the industry Mega Trends that have been accelerated by COVID-19.  It appears that sustainability, one of the industry’s previous “hot topics,” has become a lesser concern than hygiene and food safety, which have become a higher priority among consumers.   The sustainability performance of different packaging substrates has now taken a back seat—at least for the short term.

Despite the COVID-19 outbreak, M&A transactions are still taking place in the packaging space. However, data implies that deals are being completed at significantly lower levels compared to last year.

The July 13th edition of PlasticsNews reported that packaging transactions are down significantly for H1 2020 compared to H1 2019.

For the first half of 2020, 30 packaging deals were completed compared to 70 transactions in the first half of 2019, which translates to a 57% decline in deal activity. The second quarter saw an even steeper drop with deal activity declining by 72%.

At TKO Miller, we have seen a similar pattern in deal volume. We believe that many deals initiated before the COVID-19 outbreak will remain on pause until there is more clarity on what life will look like post-COVID-19. These deals are not lost but instead deferred, and we anticipate that there will be a rebound in M&A activity in the latter half of 2020 and early 2021.

Recent Flexible Packaging Transactions 

By Joe Froehlich on Jul 16, 2020 11:42:53 AM