The packaging industry is experiencing healthy growth and the positive attributes of the industry such as steady growth, significantly higher recession resistance, scalability, and innovation have created a healthy and highly competitive supply base. Within this environment, expanding capacities and product portfolios, gaining access to new markets and customers and technological edge are the core factors that are driving M&A activity. The M&A deal market is presently dominated by the Americas, followed by the Asia-Pacific region.
Trends in the market
Following are the trends in the packaging market which will form an integral part of the strategic thinking process whenever an M&A transaction is under evaluation:
Flexible packaging companies are in demand
Flexible packaging designs provide the end consumers with a higher convenience in terms of consuming and disposing of the products. Flexible packaging finds applications in the food, personal care and pharmaceutical industries, with food packaging being the biggest end use sector in terms of value and volume. Such packaging is being increasingly preferred and produced to meet the growing consumer demand. The global flexible packaging market has witnessed steady growth of around 4% per annum in value terms and is expected to be plateaued at this level over the next few years. Flexible packaging’s significant growth potential continues to drive consolidation in the sector. A recent example
being Huhtamaki, the largest player in India acquiring positive packaging, the second largest player thereby further consolidating its leadership position.
Focus on sustainable packaging solutions
One of the most significant trends in the packaging sector presently, is the rise of consumer demand for sustainable packaging solutions. Sustainable packaging helps in differentiating a product by appealing to the consciences of consumers. Additionally, government legislations and regulations are also pushing the growth of these products. The biggest growth in this product segment comes from the Asian market, driven by demand for sustainable packaging in countries like China and India. Purchasers of packaging products and services have identified environmental responsibility as one of their top criteria when making purchasing decisions which has led to widespread adoption among industry providers. Bigger companies have jumped onto this trend with smaller players expected to follow suit.
Emerging market M&A transaction activity
For mature and bigger packaging companies it is easier to acquire an ongoing concern for their geographic expansion programme rather than build a Greenfield project their way in emerging markets. Majority of the global expansion transactions have taken place in emerging markets. Emerging markets are experiencing significant increases in consumer purchasing power and consequently are attractive to consumer packaged goods providers and their packaging supplier’s basis which they represent an ideal target for mature companies in the developed markets.
Enabling factors in place
Prominent factors such as healthy cash reserves with companies, opportunities in emerging markets, easy availability of credit, improved consumer confidence and improving equity markets are likely to drive M&A activity going forward.
Conclusion
The outlook for the Asia and India in particular remains optimistic and continues to show signs of improvement coupled with relatively stable US economic growth prospects. There are a number of signs to expect packaging M&A to remain active as we move ahead in the year as this route continues to be a viable strategy for packaging executives, driven by consolidation coupled with a favourable financing environment and large cash reserves.
