The packaging industry was dominated by a modest number of high-profile, high-value acquisitions in 2011 and early 2012, with DS Smith acquiring SCA Packaging, Rank’s acquisition of Graham Packaging and Rock-Tenn’s takeover of Smurfit-Stone all catching the attention of the wider M&A market. By comparison, recent activity has been characterised by a greater volume of mid-market packaging deals.
Packaging manufacturers intrinsically face many challenging variables – heavy exposure to raw material price volatility and a tightening regulatory environment focused on green and lightweight solutions, all within an industry underpinned by technological development against a macro backdrop of tightening credit stifling capital expenditure.
How can mid-market producers facing these challenges remain attractive to investors and trade purchasers? The companies that are most attractive share three key attributes – innovation, scale and flexibility.
Innovation is particularly important in food and beverage, the dominant end vertical for UK packaging. Pack design and functionality are essential to differentiate products in the market. An inherent ethos of innovation, developing proprietary technology and design allows manufacturers to make themselves relevant, and to strengthen relationships by creating high value add output. Buyers want technical and product differentiation, not just more of the same. If an internal development underpins a successful product or brand for a customer, a manufacturer can rapidly generate scale, bargaining power, and genuine supply chain integration.
Once established, mid-market manufacturers must maintain this flexibility and responsiveness in order to outperform larger competitors who are able to produce high-volume packaging on a long-term basis at a very low cost.
Lean, agile manufacturers are proving to be strategically better-positioned in a dynamic market which demands shorter runs, tighter turnaround and delivery, and genuine operational efficiency.
Crucially, successfully achieving these attributes creates sustainable margin – a key indicator for a packaging manufacturer, and the foundation for scale.
Healthy margins will continue to promote M&A activity as the larger corporates look to accelerate growth, and investors seek platforms to enter the fragmented mid- market.