M&A activity in flexible packaging likely to join in overall rebound, industry analysts forecast; pouch producers hold distinct advantages for buyers

LOS ANGELES , July 13, 2011 () – Packaging industry analysts expect merger and acquisition activity among flexible packaging businesses to participate in the overall M&A resurgence, Plastics News reported July 12.

Analysts noted several reasons why buyers would find flexible packaging producers appealing. One reason is the strength of flexible packaging's end markets, according to Richard Weil, director of investment banking at Chicago-based Mesirow Financial Holdings Inc., speaking June 8 at the Global Pouch Forum in Fort Lauderdale, Florida.

Global flexible packaging M&A activity dropped precipitously after a peak of 350 transactions in 2007, falling 52% to 168 transactions in 2009. In 2010, activity came back significantly, rising 35% to 227 transactions.

Investors see enormous potential for growth in the flexible packaging industry, Weil said, with manufacturers likely to record EPS growth of 12% over the next two years versus 11% for rigid packaging. Weil cited three H1 M&A transactions in flexible packaging as examples of value-added propositions for buyers, including Danafilms Inc.'s acquisition by Germany-based RKW SE, Sun European Partners Inc.'s purchase of Britton Flexibles Ltd. and Sealed Air Corp.'s purchase of Barcelona, Spain-based ProAseptic Technologies.

Businesses that concentrate on pouch technologies hold special appeal for possible buyers, according to Tom Blaige, chairman and CEO of Chicago-based investment banking firm Blaige & Co. LLC. The benefits include innovation, comparatively less need for materials and the lack of difficulty in changing machinery at a buyer's other facilities to pouch production, Blaige said at the Global Pouch Forum.

The blockbuster packaging M&A transactions in H1 have been among rigid-focused companies, Mesirow said. Mesirow cited Rank Group Ltd.'s recent purchase of Graham Packaging Co. Inc. for US$4.5 billion as well as Berry Plastics Corp.'s purchase of Rexam plc's beverage and specialty closures unit for $360 million.

While H2 may see a slowdown in M&A activity among companies in the flexible packaging sector, Mesirow sees strong potential for a private equity buyer making an acquisition since there's nearly "$500 million in dry powder for M&A cached in private equity funds." Furthermore, the highly fragmented flexible packaging industry has potential for consolidation, Mesirow added. Berry, Bemis Co. Inc. and Sigma Plastics Group combined comprise 28% of the flexible packaging market share, Weil noted, adding that the top 10 companies hold 54%.

The primary source of this article is Plastics News, Akron, Ohio, July 12, 2011.

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