Acquisition challenges facing all large converters

Over the past few years the North American flexible packaging industry has undergone a flurry of M&A activity in what continues to be a highly fragmented sector in which more than 25 converters account for less than 50% of converted flexible packaging sales. With a few significant exceptions the great majority of acquisitions have been backed by private equity firms, which have sought, with varying degrees of success, to acquire converters, consolidate assets and improve performance to create larger and growing business entities that can subsequently be sold on for a premium, often to other private equity companies.

Significant acquisitions completed over the past couple of years include:

• Sonoco’s acquisition of Clear Lam and Plastic Packaging Inc.
• Amcor’s bolt-on purchase of De Luxe Packages.
• Canadian printer TC Continental’s diversification into flexible packaging primarily in the US.
• Berry Global’s acquisition of AEP Industries.
• ProAmpac’s acquisitions of Clondalkin Flexible Packaging Orlando and most recently Poly First Packaging.

However, the really big game changer would be the multi-billion dollar takeover bid reportedly being considered by Amcor for Bemis in a move that, if successful, would dramatically transform its business in the Americas and represent one of the biggest consolidations ever in the flexible packaging industry across the region.

What’s next for the flexible packaging market?

One challenge they all face is how to integrate these acquisitions without destroying the dynamism and business culture of a business in order to maintain its success. The flexible packaging industry and associated private equity backers have a mixed record in this respect. Some companies, especially Amcor, have been very successful in growing globally by bringing together many companies with disparate business cultures and business models to create one of the very few truly global flexible packaging businesses. Others have been much less so, having pursued a less coherent acquisition strategy and acquired companies where there are insufficient synergies or opportunities to build a thriving long term business.

Consolidation can load an acquired company with additional management bureaucracy and administration costs, which can reduce the ability of the company to pursue its original business model. Smaller target companies also tend to be regional players whose management has a different mindset compared with the large converters with national coverage.
The major converters are coming under a lot of shareholder pressure to add value to their business while at the same time they are trying to develop strategies to fend off the pressures from their major big brand customers to reduce prices. Bolt-on businesses can help grow and diversify a business but just going out and buying ‘whatever-is-for-sale’ is unlikely to be successful.