The first half of 2012 has seen a decline in global merger and acquisition (M&A) activity across most industry sectors and geographies, according to Mesirow Financial's just-released Packaging Perspectives report. Deal activity has been adversely affected by the financial and political crises in many European countries, recent poor global stock market performance and uncertainty regarding future economic conditions. First half global M&A deal volume, across all industries, fell back to levels modestly below those seen in 2009 and 2010.
The largest transactions announced in the first half of 2012 were dominated by strategic transactions, such as Glencore's $45 billion acquisition of fellow mining giant Xstrata and Eaton's $12 billion purchase of electrical equipment producer Cooper Industries. It has been several years since financial sponsors have been able to complete a transaction larger than $10 billion, largely due to reduced credit availability.
The packaging industry also saw a decrease in M&A volume in the first half of 2012. Deal activity was below 2011 and slightly above the levels seen in 2009 and 2010. However, the first half of 2011 was bolstered by several large strategic transactions, including Rank Group's $4.5 billion acquisition of Graham Packaging, RockTenn's $4.4 billion acquisition of Smurfit-Stone and International Paper's $4.2 billion acquisition of Temple-Inland. These three significant transactions accounted for nearly 80 percent of the total packaging M&A volume during the period - a fact that is unusual given that packaging M&A volume has historically been largely comprised of middle-market transactions.
The first half of 2012 was characterized by a number of very interesting packaging transactions reflective of key M&A trends that continue to influence the packaging industry.
The range of different packaging transactions announced in the first half of 2012 is truly impressive, Mesirow says. Combinations like Solo Cup and Dart Container, as well as SCA Corrugated and DS Smith, represent landscape-altering transactions within their respective market segments. Companies such as Amcor and D&W Fine Pack continue to utilize M&A to accelerate growth and market share. Corporate divestitures continue to reshape industry participants. And not insignificantly, private equity sponsors maintain a strong interest in packaging, demonstrated by several new platform investments created by acquisitions of leading packaging businesses.
The wide array of packaging transactions completed in the first half of 2012 resulted in valuations that were consistent with 2011, but improved relative to 2009 and 2010. There has been a steady increase in EBITDA
multiples paid by financial sponsors since the recession in 2009.
Moving forward, Mesirow Financial expects the multiples paid by financial sponsors to remain strong and possibly increase, given the large amount of private equity available for investment and the accommodating levels of credit available to finance transactions - especially in the middle market.
Public company valuations also influence the level of M&A activity. Valuation multiples for public paper and plastic packaging companies remain healthy. Public companies are often able to pay more for an acquisition target when acquired earnings and expected synergies are being capitalized at an attractive level.
The diversity of packaging transactions announced or completed during the first half of 2012 provides a clear
indication that M&A is helping strategic and financial parties achieve their goals. Industry participants are using M&A to generate growth, increase scale and reach (customer and geographic), enhance capabilities, improve margins and reduce costs. As a result, Mesirow Financial anticipates M&A will continue to be an effective strategic tool in the packaging industry during the second half of 2012 and beyond.