Industry Insights: Global Packaging Industry, Winter 2024
Relieved that much of the world’s economy avoided recession in 2023, many in the packaging industry are nonetheless happy to have 2023 in the rearview mirror. While not necessarily a retraction, many in our industry dealt with uninspiring volume, increasing costs of labor, and increasing costs of financing. This lackluster economic backdrop and recession uncertainty, coupled with significantly increased interest rates, hit the M&A transaction market hard.
Our key observations for this edition of Industry Insights:
Transaction Volumes continued their decline from 2021, with major segments witnessing double-digit declines. Month-to-month data provide no firm indication that volumes are yet to rebound. There were, however, pockets of positive momentum in Machinery & Equipment, Multi-material Converters, and Rigid (non-plastic) packaging.
Activity dropped across all Buyer Types (corporate, private, sponsor). The one ray of hope was an actual uptick in new sponsor-led platform formation – with new platforms slightly surpassing pre-pandemic levels.
Average deal pricing (as measured by EBITDA multiples) slid for the second year in a row, falling by more than one turn of EBITDA to 8.0x. All segments are trading at or below their five-year average pricing. This may signal an opportunity for motivated acquirers to move back into the market (see above – new platforms).
It is now clear that the aberration was not suppressed numbers in 2023, but rather over exuberance in prior years (primarily 2021). 2023’s volumes and pricing more closely resemble the Covid year of 2020. With the market anticipating central banks to cut interest rates in 2024, there’s optimism that the opportunities for acquisitions can improve, and a solidifying of demand/pricing could also translate to normalization of the M&A environment. When we will see the results of this, however, is not yet clear.
There were a number of transactions that were brought to market in 2023 but did not meet the expectations of the Sellers and remain on hold. It remains to be seen what will happen first: (i) Sellers adjust their expectations so that these deals can close, or (ii) if falling interest rates and an improved economic environment return multiples to 9.0x+. If we must wait for an improved environment, deal volumes are not likely to rebound meaningfully until 2025.
While short of 2021’s blow-out year for new Sponsor Platforms, 2023 saw a 15% increase in new platform formation by financial sponsors, bringing new platform formation in line+ to activity in 2019 - 2020. Perhaps sensing a “buy low” opportunity, sponsors executed buyouts at a 2.1x discount to multiples that they paid in 2022. While still early in the cycle, this is an indication that we may have reached a “bottom” and activity may be poised to bounce back.
