The global forest, paper and packaging industry continues to face great upheaval, not only in responding to the current economic climate, but in dealing with continuing macro-economic factors, including foreign exchange fluctuations, increased energy and transportation costs, lacklustre demand at best in North America and Europe and the impact of developing markets on global competition. Traditional value chains are undergoing a transformation which is causing the break-up of vertically integrated providers, a phenomenon that is fuelling M&A activity. Given current economic conditions the most prominent activity will be the acquisition of distressed businesses by stronger players. Companies are selling off underperforming and non-core businesses and the leading players are seeking to extend their global reach, whether the driver is growth, lower cost inputs, or ultimately, shareholder value. Despite tough conditions, more strategic deals could happen at low values where consolidation is already well overdue, including in Europe and AsiaPac through 2009 and beyond.

New entrants have played and will continue to play a role. There have been new strategic investors into traditional markets who believe they can drive superior returns to existing players or into new opportunities presented by wood biomass such as bioenergy, biofuels and bioehcmicals; private equity (timberland investment managers) investing into the industry’s fibre base; buy-out funds seeking high cash returns from more active asset management or finance structures.

All of these factors will continue to drive widespread restructuring, consolidation and transformation of industry value chains.

How PwC can help

PricewaterhouseCoopers Transaction Services and Corporate Finance teams bring unparalleled strength – in people, knowledge and services – to ensure your deal decisions are informed ones and your investments are successful. Our financial, operational, strategic, structuring and corporate finance specialists work alongside our other specialists within the firm including tax M&A, HR, pensions, valuation, IT and environmental to enable you to extract maximum value from your business before, during or after a transaction.

Read more about deals activity in the industry and about our credentials in transactions in our thought leadership paper entitled Forest, paper and packaging deals: 2008 Annual Review .