Development of The Packaging Industry

As the post-pandemic destocking boom fades from view, one of the factors that has influenced recent packaging M&A decisions is losing influence. Analysts expect packaging M&A to continue through 2024, but at a more normalized pace than the post-pandemic boom and subsequent destocking downturn.

Thomas Brig, CEO of Bryce Investments, said that packaging M&A has more than doubled in the past 20 years and is a growing industry. However, M&A activity in the industry has been relatively sluggish in the past few years.

However, analysts point out that some changes are brewing. "We have seen a particular upward trend in the past few months, especially before the summer," said Evan Golden, head of private equity firm Longview Capital. "Many people have returned to the market and feel more comfortable with their business conditions and trends, and feel that the foundation is stable."

Will Fulham, CEO of Deloitte Corporate Finance, said that the pace and number of packaging transactions so far in 2024 are "relatively mild," and this situation may continue until the third quarter. “My best prediction is that we will see a return to normal service, which is a strong, respectable volume of M&A… I expect this to continue into the second half of the year and beyond.”

Post-pandemic supply chain conditions, known as destocking, played a huge role in the slowdown in M&A activity over the past year. In the packaging substrates sector, companies felt the impact of increased customer inventory immediately after the outbreak. Industry observers generally expected a correction, but it turned out to be larger than expected.

“I think the extent of the correction surprised almost everyone in the market,” said Fulham. “Most people expected this to be a 30- or 60-day event, but it actually lasted 4-6 months.”

The impact of destocking on customers spread to packaging companies in the form of declining sales and revenues. This affected their M&A outlook and timing: companies that are exploring deals don’t want one or two quarters of instability to be the latest financial number on their books.

“Most people are just waiting for this to go away in 12 months… before sellers might consider and initiate an M&A deal process,” said Fulham.

Destocking has also led to issues with the quality of deals being made, said Thomas Bragg. Some companies are entering the market out of necessity rather than because the timing is perfect, confirmed Tommy.

The destocking in 2022 and 2023 “makes it hard for some companies to feel like they have the motivation and confidence to go to market. That’s true for a lot of private equity-owned platforms and even family businesses,” Tomey said. Still, “family businesses have been more willing to go to market than private equity-owned platforms and will continue to be.”

The impact of the private equity-led M&A boom that began about 18 to 24 months ago is a factor to consider when assessing deal potential over the next six to 12 months, Fulham said. A few specific sectors, such as label converting and folding carton, stand out.