It's no secret that public and private market valuations for packaging businesses are besting historical highs. Large publicly traded companies, private corporations, private equity-backed, and family-owned businesses alike have carved out their niche in a demanding and lucrative market segment.
And what's not to like? Packaging is often viewed as one leading indicator of the broader economy. Virtually all goods must be packaged, from the inside protecting the product through the outside protected from the rigors of shipping and logistics. Strong operators with a customer-centric focus tend to enjoy the benefits of high cash flow generation.
The seemingly insatiable appetite for packaging assets is a global force. North America and EMEA regions constitute much of the world's demand for packaging materials and, logically, M&A interest and activity. The resilience of the packaging market shone especially brilliant during a COVID-19 riddled 2020. Valuations across the packaging spectrum are richer today than pre-pandemic -- and before that -- already climbing at a blistering pace. Flexibles, rigids and closures, glass and cans, and labels are at all-time highs. Even paper segments have attained valuation levels not seen since before the Great Recession.
Global M&A activity fell almost 30 percent last year, while that in North America decreased about 15 percent from 2019 to 2020. Meanwhile, M&A activity has come roaring back in Q1 2021, up almost 20 percent globally and flat in North America over the same period in 2020. The drop-off is particularly notable because packaging operators, like other essential manufacturing businesses, turned inward and executed on impromptu playbooks -- all the while taking extreme care of their employees and customers in a pandemic.
As the world races toward vaccination (or herd immunity), the rewards for packaging owners and their management teams are tailwinds in a growing economy and a robust M&A market chock-full of strategic and private capital ready to be deployed at a moment's notice. Pair that dynamic with upward trending financial statements along with a well-defined growth plan and you have the basic elements of constructing a competitive liquidity process.
So, valuations are at record highs and there's no shortage of investors or buyers. If it sounds too good to be true, what's the catch? The answer: not all businesses are created equal. Competition is a reality; management aptitude differs; growth opportunities are incongruent; and end-markets matter. The list goes on. Businesses compete in living, breathing ecosystems, and the answer to "How much is my business worth?" is in a constant state of flux.
Not sure where to start if you're looking to jump in? Contact Andrew Suen, managing director, Hexagon Capital Alliance at asuen@hexagoncapitalalliance.com.
