What strategic acquirers look for in a flexibles and carton business

Packaging News posted Graham’s insights on what strategic acquirers look for in a flexibles and carton business to its online section ‘Soap Box’.

Graphic Packaging’s purchase of Benson Group earlier this year, followed by Coveris’ acquisition of St. Neots in June marked the acceleration of the M&A cycle within the flexibles and carton based UK Packaging sector.

If entrepreneurs want a strategic or private equity buyer to invest in their business to support the next stage of growth or to allow them to realise the value they have built up in their business, they need to understand what buyers and investors are looking for in the packaging sector and consider their requirements carefully as they build their business.  Only in this way can they ensure that when they are ready to sell there will be a strong population of motivated buyers.

Here is our ‘top 5’ guide to what strategic purchasers look for when assessing a target:

Niche Market Penetration:

Acquirers will always prefer businesses that are either number 1 or number 2 in their core product set with a defensible position with customers. The product can be quite niche provided it is differentiated in some area of performance and it is a growing category.  If you can show an increasing number of applications for that product, all the better.

Additive Product Set / Capability:

A buyer rarely wants ‘more of the same’.  To get them interested a business will need to be technically differentiated, have products that they do not currently manufacture (but which align with their markets and customers) or offer additional customer services or logistics solutions they don’t have.

Sustainability & Innovation:

Packaging is a dynamic environment as end customers look to packaging to continuously reduce waste, enhance product lifespan and aesthetics and deliver cost savings, all the while differentiating their products from the competition.   Buyers will always be keen to understand how (and how often) the company develops new products and what the development pipeline looks like as this will be seen as driving the sustainability of future growth and profit margins.

Geographical Penetration:

Buyers generally want to ‘buy a market’, so UK nationwide coverage, rather than a regional provider is usually preferred.  Having multiple sites is generally desirable providing they are all well-located and invested.

Platform Asset:

The brutal truth is that, within packaging M&A, size does matter (within reason). Generally international acquirers will prefer businesses with £3.5m or more of EBITDA as this indicates an attractive operational scale and sophistication. Other factors such as having a robust primary and second tier management team, a deep customer base and strong margins (ideally a 10% EBITDA or better) will also all increase a business’s attractiveness while reducing the perceived risk to the acquirer.

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