BMO Capital Markets, the investment and corporate banking arm of BMO Financial Group (NYSE, TSX: BMO), has released its third annual report on packaging M&A activity, titled Mergers and Acquisitions in the Packaging Industry: 2008 Annual Deal Review. The report examines M&A activity in the packaging industry in North America as well as on a global basis over the last several years, examining activity by sector, geography, acquirer type, size, and valuations, and providing a brief synopsis of each transaction announced during the year. In addition, the report examines packaging M&A trends over the last several years.

“The last year has been a challenging year for M&A activity in the packaging industry in terms of deal volume, valuations, and interest among all types of acquirers,” says Doug Lawson, managing director of the BMO Capital Markets packaging practice. “After a record setting 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 resulted in a significant slowdown in packaging M&A activity,” Lawson adds. “While we expect the challenging conditions to persist in 2009, we believe that packaging industry fundamentals remain attractive over the medium to long term and the strong rationale for consolidation in the packaging sector continues to exist.”

• Global M&A volume declined after five consecutive years of increasing activity
In 2008, there were 252 announced transactions worldwide, which represent a decrease of 35 percent from the 386 announced deals in 2007 and the lowest level in the past 10 years.

• M&A activity weakened across all regions of the world
Europe and North America continued to remain the two largest regions for deal activity worldwide, with 38 percent and 34 percent of deals in 2008, respectively. However, year over year, transaction volume fell off across all regions worldwide in 2008. While North America was the second most active region with 34 percent of total global deals, it experienced the largest drop, with 56 fewer transactions in 2008 (86 transactions) than 2007 (142 transactions).

• All sectors were affected by market conditions in 2008
In 2008, the number of deals in the packaging industry was relatively evenly dispersed between the rigid (29 percent), paperboard (24 percent), and flexible (23 percent) sectors. The remainder of activity was split between labels, machinery, and other packaging. While M&A activity slowed across all sectors, flexible packaging had the most significant slowdown on a nominal basis. Packaging machinery was least affected with only 18 percent fewer transactions in 2008 than 2007.

• Announced packaging deal value was down year over year
The aggregate value for packaging transactions with reported values in 2008 was $14.9 billion for the 88 transactions (35 percent of all deals) with reported values as compared to $32.6 billion in 2007 for the 137 transactions (35 percent of all deals) with reported values. The median reported transaction value in 2008 was $17.3 million versus $35.1 million in 2007 and $21 million in 2006.

• Strategic acquirers continued to account for the majority of transaction volume
Strategic acquirers continued to lead M&A volume in the packaging industry, with 166 transactions or 66 percent of announced deals in 2008 (versus 255 deals in 2007 or 66 percent of announced volume). Private companies made more acquisitions in 2008 (94) than public companies (72); while in 2007, public companies had been more active than private companies. Private equity firms and their portfolio companies accounted for the remaining 86 deals or 34 percent of transactions.

• A variety of restructuring-related transactions were announced
In the second half of 2008, several restructuring-related acquisitions were announced as heavy debt levels were aggravated by the challenging economic and financing environment combined with high commodity prices.

The BMO Capital Markets Packaging Group has led numerous M&A and financing transactions of packaging companies. It represents public, private and private equity owned companies across a variety of packaging sub-sectors, including rigid, flexible, paperboard, labels, contract packaging and packaging machinery. 
 
To request a copy of the Mergers & Acquisitions in the Packaging Industry: Annual Deal Review or to subscribe to The Converter, a monthly BMO newsletter which reports on the activities and trends shaping this industry, visit www.bmocm.com/industry/packaging or send an email to Doug Lawson at [email protected] or Laura Hubbard at [email protected].