Global forest, paper and packaging deals insights: Year-end 2019

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Executive summary

Twenty nineteen Global Forest, Paper, and Packaging M&A activity finished the year below historical levels. Deal value and volume declined 69% and 15%, respectively, compared to 2018. The lack of megadeals in 2019 contributed to lower deal value.

Flexible Packaging and Miscellaneous Products led sector categories in both deal value and volume, representing 60% and 52%, respectively for 2019. Seven of the top ten deals in 2019 occurred in this category. Nippon Paper Industries announced acquisition of Orora Ltd. ($1.2 billion) was the largest deal of Q4 2019 and second largest of 2019 for the sector.

fpp-deal-summary

"Flexible packaging led all sector category M&A activity in 2019. M&A activity in 2020 will likely experience many of the same themes that impacted 2019.”

Max Blocker - Global Forest, Paper and Packaging Deals Leader

High level trends and highlights of 2019

Highlights

  • In 2019, the total deal value declined by 69% to $16.4 billion from $53.4 billion in 2018. However, for Q4 2019, deal value increased by 71% to $4.8 billion versus Q3 2019.

  • The deal volume declined by 15% to 491 deals vis-à-vis 580 deals in 2018. Similarly in Q4 2019, the deal volume declined by 21% to 111 deals from 140 deals in Q3 2019.

  • In 2019, the average deal size saw a decline of 66% to $76.1 million from $221.7 million in 2018. However, the average deal size for Q4 2019 increased by 2.1x to $109.4 million from $51.1 million in Q3 2019.

Deals by disclosed value and average deal size

The average deal size, for 2019, declined significantly by 66% to $76.1 million from $221.7 million in 2018. This is because there were no megadeals in 2019, whereas 2018 witnessed three megadeals. In Q4 2019, the average deal size grew by 2.1x to $109.4 million from $51.1 million in Q3 2019. Three of the top ten deals for the year occurred in Q4 2019, while none of the top ten deals occurred in Q3 2019.

Financial vs. strategic investors

In 2019, strategic investors led by sponsoring 67% of total deal value whereas financial investors sponsored 33%. In terms of deal volume, strategic investors again stayed ahead of the financial investors by contributing 67% to the total deal volume. Similarly in Q4 2019, strategic investors dominated in terms of deal value by sponsoring 87% of total deal value. Strategic investors remained the leader in deal volume as well by contributing 66% to the total deal volume in Q4 2019.

 

Regional analysis

In 2019, Asia and Oceania was the leader in deal value and volume in both the acquirer and target region. The region was followed by North America in both the acquirer and target region, in terms of deal value. However, in terms of deal volume, Asia and Oceania was followed by UK and Eurozone in both acquirer and target region in 2019. In Q4 2019 as well, Asia and Oceania was the leader in deal value for both acquirer and target region.

 


Highlights of deal activity


Forest, paper and packaging deals outlook

M&A activity in 2020 will likely experience many of the same themes that impacted 2019. On a positive note, high levels of available cash on both corporate balance sheets and private equity funds, the low cost of debt, and continued focus on portfolio rationalization presents optimism for M&A moving into 2020. Record stock market levels and high company stock valuations could allow for leveraging stock as a financing tool even with high seller multiple expectations. Strategic buyers in Asia Pacific could continue to be active in the sector. 

However, growing geopolitical tensions, especially in the Middle East, Brexit uncertainty, on-going trade negotiations between the US and China and the looming fears of a recession are all factors that will drive investors to exercise caution when evaluating and pursuing their M&A strategies.  

Supply chain optimization will continue as a key value driver for deal makers as they look to mitigate any impacts of US and China trade negotiations and the implementation of the new USMCA Trade Agreement. Flexible packaging should remain an attractive sector category as consumer demand for environmentally friendly and sustainable solutions increases. The e-commerce economy, demand for quality consumer packaging, and corrugated shipping cartons should continue to increase and present opportunity.

Technology and innovation will continue as popular themes.  Such solutions will continue to be highly sought after and cross-sector companies who can bring these capabilities are expected to be attractive M&A targets or industry acquirers. Prior period consolidation activity, particularly in North America may result in more divestiture activity as company’s look to rationalize non-core assets.

About the data

The information presented in this report is an analysis of deals in the global forest, paper, and packaging industry. Deal information was sourced from Thomson Reuters and includes deals for which targets have an SIC code that falls into the paper and packaging mid-industry group. Certain adjustments have been made to the information to exclude transactions which are not specific to forest, paper, and packaging or incorporate relevant transactions that were omitted from the SIC industry codes.

This analysis includes all individual mergers, acquisitions, and divestitures for disclosed or undisclosed values, leveraged buyouts, privatizations, minority stake purchases, and acquisitions of remaining interest announced between January 1, 2017 and December 31, 2019, with a deal status of completed, partially completed, pending, pending regulatory and pending completion, and excludes all rumors and seeking buyers. Additionally, transactions that are spin-offs through distribution to existing shareholders are included.

Percentages and values are rounded to the nearest whole number which may result in minor differences when summing totals.

Contact us

Max Blocker

US and Global Forest, Paper and Packaging Leader, PwC US

Harry Gruits

Forest, Paper and Packaging Deals Leader, PwC US

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