2003 YEAR IN REVIEW
The PiperJaffray packaging team has extensive knowledge and experience in the
packaging industry and offers a full range of strategic M&A advisory services.
They provide two particularly valuable packaging publications: "M&A Insights Reports" with
timely insightful analysis of the packaging sector and "The Wrap" a monthly
newsletter that covers topics related to current M&A activity in the packaging
industry. These publications are highly recommended.
Following are a some highlights from the M&A
Insights Report: M&A Packaging Industry: 2003 Year
In Review & 2004 Outlook. To request a copy of this or other M&A Insights
Reports, or to subscribe to The Wrap, please visit
www.piperjaffray.com/packaging.
PACKAGING INDUSTRY OVERVIEW
The global packaging industry is approximately a $433 billion market. The
domestic packaging market, which is the major focus of this report, represents
approximately 29%, or $124 billion of the global market. The industry
consists of four general segments classified by material type: paper and board,
plastics, glass and metal. The largest segments of the industry are paper
and board and plastics, which account for 36% and 35%, respectively, of the
global packaging market. The packaging industry is a large,
fragmented market with thousands of competitors.
While packaging companies serve a variety of markets, the largest end markets
for packaging products are food and beverage. Food
packaging accounts for approximately 40% ($175 billion) of all packaging
applications. Beverages represent approximately 18% or $80 billion.
These end markets are stable, non-cyclical, steadily growing markets that are
consequently attractive, regardless of the economic climate.
The growth rate of the packaging industry is primarily driven by growth rates
and market trends within various end markets. Growth rates vary from a low
of 3.2% for beverages to a high of approximately 5% for health care products.
The largest end market, food, has historically grown at slightly less than 4%
annually. It should be noted that subsegments of an end market may grow at
higher rates than the end market itself. For example, while the beverage
market has generally been a low growth market, the bottled water subsegment of
the beverage market has recently achieved very strong growth.
PACKAGING INDUSTRY M&A ACTIVITY IN 2003
The Number of Packaging M&A Transactions Increased Slightly
There were approximately 311 packaging M&A transactions announced in 2003. The
number of transactions edged up slightly from 2002, which had 309 transactions.
However, activity remained below the historical peak of 449 deals in 2000.
Total Deal Value Increased Slightly
The total deal value for announced M&A packaging transactions was approximately
$14.3 billion in 2003, an increase of 4.4% over the $13.7 billion announced in
2002.
Paper and Board and Plastics Packaging Companies Accounted for the Majority
of Announced Transactions
Taken together, paper and board and plastic packaging
targets accounted for 68% of all announced M&A packaging transactions. In
addition, "other" transactions, which in large part is comprised of a
combination of paper and board and plastics deals, accounted for 22% of
announced transactions. This trend is consistent with activity over
the past several years.
Strategic Acquirers Continued to Account for the Majority of M&A Activity
During 2003, strategic acquirers again accounted for the vast majority of announced M&A transactions.
Public acquirers accounted for approximately 28%,
while private companies accounted for 62%. Some of the larger strategic activity
included: Riverwood Holdings' merger with Graphic Packaging International, Alcan's purchase of VAW Flexible
Packaging and Amcor's acquisition of Rexam's
Healthcare Flexibles operations.
M&A Activity by Financial Acquirers Remained Strong
Financial acquirers (e.g., private equity firms) remained active in 2003. With
help from improved lending market conditions and substantial uninvested capital,
private equity firms continued to pursue opportunities in the industry. Examples
include: the
acquisition of Landis Plastics by GS Capital Partners–backed Berry Plastics; the
acquisition of Concept and Gorilla Label by WS Packaging, partly owned by
Brantley Partners; and Montagu Private Equity's acquisition of Linpac Group.
M&A Transaction Valuations Increased
Valuations for M&A transactions, which typically fall in the range of 5.0x to
7.0x EV/EBITDA, increased slightly in 2003 above 2002 levels.
Packaging Stocks Underperformed the Market
The Piper Jaffray packaging index did not fully share in the broader market
rally last
year. The index underperformed the broader market by 11.3% in 2003.
On an EV/EBITDA basis, our packaging index traded at a multiple of 8.0x, up from 6.8x
last year.
To get the full report, go to
www.piperjaffray.com/packaging.
