According to the flexible packaging association of linthicum, md., global flexible packaging m&a volume fell off sharply from a high of 350 deals in 2007 to 217 in 2008 and 168 in 2009 &mdash a 52 percent drop &mdash but climbed 35 percent up to 227 deals in 2010. Wall street sees flexible packaging firms as ripe for significant earningspershare growth, weil said. Flexibles companies are expected to post eps growth of 12 percent during the next two years, compared to 11 percent for rigid packaging, 10 percent for folding carton manufacturers, and 5 percent for corrugated packaging makers. He cited three firsthalf 2011 flexibles deals as examples of valueadded propositions to the buyers january&rsquos acquisition of danafilms inc. By germany&rsquos rkw se, one of europe&rsquos largest film extruders.
Sun european partners inc.&rsquos april acquisition of britton flexibles ltd., one of europe&rsquos largest polyethylene film producers. Sealed air corp.&rsquos acquisition in the first quarter of proaseptic technologies, a barcelona, spainbased company that designs and manufactures packaging and filling equipment for ultraclean filled food and beverage products. Companies that specialize in pouch technologies have several distinct advantages for potential buyers, said tom blaige, chairman and ceo of chicagobased investment baking firm blaige & co. Llc. Those advantages including innovation, relatively low use of materials, and ease of transitioning machinery at a buyer&rsquos other plants to pouch production, blaige said june 8 at the forum. &ldquotechnology is the no. 1 value driver. Pouches within packaging represent a leading technology,&rdquo he said. &ldquothe financial community and corporate types are trying to get growth in their earnings per share like the pouch market because it&rsquos got growth and it&rsquos got profitability.&rdquo blaige predicted that pouch manufacturers will reward buyers with high earnings, raising earnings before interest, taxes, debt and amortization multiples in future m&a deals. Weil said that average ebitda multiples for packaging m&a transactions hit highs of 8.7x ebitda for strategic buyers and 7.4x ebitda for private equity buyers in 2007, before falling to lows of 6.5x for strategics and 5.3x for financials in 2009. With the rebounds that began in 2010 continuing, he predicted that multiples would be closer to 2007 levels for the second half of 2011.
Seen in light of recent recession related declines, multiples for packaging m&as as a whole in the first half of 2011 are consistent with averages during the first half of the 2000s, john chrysikopoulos, managing director of mesirow&rsquos investment banking group, said june 28 by phone. &ldquopeople still have memories of all the deals that were done in 2007, and the returns so far don&rsquot look all that great, because buying at the peak of the market doesn&rsquot typically lead to good returns. &ldquoif there is a very highquality company with high margins, high growth rates, strong market positions, we will see premium multiples,&rdquo he said. Flexible packaging multiples for m&a deals, which lagged behind rigid packaging at 5.5x ebitda for flexibles to about 6x ebitda for rigid transaction in march 2009 &mdash the depths of the economic downturn &mdash since have rebounded to 7.1x ebitda for flexibles compared to about 8x ebitda for rigids in may 2011, weil said. According to mesirow, the blockbuster packaging deals for the first half of 2011 for plastics were in rigiddominant companies rank group ltd.&rsquos recent acquisition of graham packaging co. Inc. For 4.5 billion and berry plastics corp.&rsquos purchase of rexam plc&rsquos beverage and specialty closures business for 360 million.
But wellspring capital management llc&rsquos recent formation of prolamina inc. Through the acquisitions of jencoat inc. And excelpac inc., as well as mason wells inc.&rsquos ownership of coating excellence international llc, were noted as prominent examples of privateequitybacked m&as that could yield longterm positive results for the buyers. While strategic buyers such as rank and berry may slow down their m&a activities in the second half of 2011, mesirow is betting that at least one large privateequitybased packaging deal will occur in the second half of 2011, since about 500 million in dry powder for m&a is cached in uninvested private equity funds. &ldquothese private equity firms face a decision they either compete hard and pay full prices for companies, or they give the money back. They can&rsquot sit on it and charge a management fee at the end of each month they&rsquore looking to put money to work,&rdquo weil said.
Chrysikopoulos said that the expected big secondhalf deal has a good chance of occurring in flexible packaging. Even if it doesn&rsquot, flexible m&a volume should rise. &ldquothe flexible part of the packaging industry is a lot more fragmented than the rigid, so there is a lot more room for consolidation. In terms of not the dollar amount but the number of transactions, i see a lot more on the flexible side than on the rigid,&rdquo he said. According to weil, berry, bemis co. Inc. And sigma plastics group hold 28 percent of the flexible packaging market share, with the top 10 companies in the segment controlling 54 percent.
