Financing M&A

Reduced merger and acquisition activity in the packaging sector reflects the effects of the credit crunch and the global recession.

March 2009 by Tom Polischuk

multipage

Merger-and-acquisition (M&A) activity in any industry segment usually reflects the overall health of its economic conditions. In good times, companies have cash and confidence to pursue expansion activities and new growth markets—many times, via the M&A route. In not-so-good times, the activity slows, as companies look inward toward strengthening their existing businesses through cost reductions and efficiency improvements. 

During a presentation at the Flexible Packaging Association (FPA) annual meeting held in March 2008, Doug Lawson, managing director and packaging group sector head for BMO Capital Markets (www.bmocm.com), noted a change in economic conditions that would be reflected in M&A activity. At the time, he predicted that M&A activity in the packaging industry would slow in 2008 (albeit, from record levels in 2007) due to a slowdown in the overall economy and a tightening of credit markets. 

What a difference a year makes! Although the signs of a recession and credit crunch were apparent early last year, few people, if any, were able to imagine the magnitude of either the recession or the credit crisis. The recession is deep, global, and of a magnitude not seen in decades. The credit market has virtually collapsed in all areas of the world and even after large infusions of governmental support by countries all over the world, credit availability is still limited.

BMO Capital Markets recently released its third annual report on packaging M&A activity, titled “Mergers and Acquisitions in the Packaging Industry: 2008 Annual Deal Review.” In this report, Lawson states, “After a record year in 2007, the M&A environment was affected by challenging market conditions in 2008. The credit crisis and a difficult economic environment combined with unprecedented spikes in resin, oil, and paperboard prices and resulted in a significant slowdown in packaging M&A activity.”

Some highlights in the report include:

• The number of global M&A transactions fell 35 percent from 2007 to a total of 252, the lowest level in 10 years.

• While North America was the second most active region worldwide, it also experienced the largest drop from 2007—close to 40 percent fewer transactions. 

• The number of transactions was evenly split across packaging industry sectors: rigid (29 percent), paperboard (24 percent), and flexible (23 percent). 

• Strategic acquirers led M&A transactions with 66 percent versus 34 percent for private equity firms. 

• MORE ON
• BUSINESS MANAGEMENT