Forest, paper and packaging deals insights: Midyear 2020

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After a period of strong M&A over the past decade, dealmakers now face unprecedented disruption from the COVID-19 pandemic. Supply chain disruption, deteriorating and opportunistic end markets, reduced access to financing and workforce safety are some of the key factors forcing dealmakers to reevaluate their M&A strategies and how to get deals done.

The impact of COVID-19 on M&A activity on the Global Forest, Paper and Packaging sector has been significant. H1 2020 deal value and volume declined 55% and 30%, respectively, compared to H1 2019. Much of this decline occurred in Q2 2020 as both deal value and volume were down 59% and 58%, respectively, compared to Q1 2020. The lack of megadeals in 2019 continued into H1 2020. 

From a segment perspective, Paper and Fiber based products made up 48% and 46% of deal value and volume, respectively, including seven of the top ten deals in H1 2020.  Forestry had the largest transaction with Rayonier Inc.'s acquisition of Pope Resources LP for $552 million. Flexible Packaging & Miscellaneous Products continued to make up a significant share of deal volume (46%); however, deal value fell 78% in H1 2020 compared to H1 2019. 

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"Companies must adapt to this new, evolving environment in how they assess and evaluate M&A opportunities. What may have been an attractive opportunity pre-COVID 19 may no longer be the case. Aligning deal priorities to reflect the new competitive landscape will be critical." 

Max Blocker - Global Forest, Paper, and Packaging Leader

High level trends and highlights

  •  In H1 2020, deal value and volume has declined for the forest, paper, and packaging (FP&P) sector. Total deal value declined by 55% to $3.9 billion in the first half of 2020 as compared to the H1 2019.
  • Total deal volume in H1 2020 was 169 deals as compared to 241 deals in H1 2019.
  • The top 10 deals totaled to $2.3 billion, contributing 59% of the total deal value in H1 2020.
  • Drop in deal volume and value was due to the lower demand in the FP&P sector coupled with the impact of COVID-19 pandemic.

  • FP&P sector experienced a decline in transaction value and volume across all sub-sectors except forestry.
  • Paper & fiber based products sub-sector constituted 48% and 46% of total deal value and volume, respectively. In H1 2020, seven out of the top ten deals were from this sub-sector.
  • In the first half of 2020, the forestry sub-sector accounted for 20% of total deal value and 8% of total deal volume. The largest deal of the FP&P sector was from the forestry sub-sector valued at $552 million.
  • The flexible packaging & miscellaneous products sub-sector contributed 32% and 46% of the total deal value and volume, respectively. Two of the top ten deals belong to this sub-sector.

  • Within-border deals provided the majority of H1 2020 deal value and volume. It contributed 88% of deal value and 73% of deal volume in H1 2020. Within-border transactions accounted for nine of the top ten deals in H1 2020.
  • Cross-border deals made up 12% of deal value and 27% of deal volume in H1 2020. 

  • Asia and Oceania dominated H1 2020 disclosed deal value and volume. The players in the region were the most active acquirers with $2 billion or 48% share in terms of deal value.
  • North America exhibited the second highest deal value of $1.7 billion. The number of disclosed transactions in the region decreased by 49% in H1 2020 as compared to H1 2019.
  • Africa and South America were notably low in H1 2020, both in terms of disclosed deal value and volume.  



Forest, paper and packaging sub-sector analysis

Forestry registered growth in deal value but decline in deal volume in H1 2020 as compared to H2 2019. Acquisition of Pope Resources LP by Rayonier Inc for $552 million was the largest deal in the sub-sector.

Paper & fiber based products witnessed a decline of 24% and 25% in deal value and volume, respectively, as compared with H1 2019.

Flexible packaging & miscellaneous products experienced a decline of 78% and 34% in deal value and volume, respectively, in H1 2020 as compared to H1 2019. Two of the top ten deals in H1 2020 were from this sub-sector.


Financial vs. strategic investors

Strategic investors contributed 64% and 69% share of the total deal value and volume, respectively, in H1 2020. For the past eight quarters, the strategic buyers remained more active in the sector in comparison to financial buyers. In the first half of 2020, financial investors contributed 36% and 31% share of the total deal value and volume, respectively.


Forest, paper and packaging deals outlook

The COVID-19 pandemic and economic fallout has brought a virtual pause to M&A activity as investors assess what to do next. While many companies pull back on inorganic growth, proactive and timely M&A can help leapfrog competition, take share and accelerate recovery. Forest, Paper and Packaging companies must adapt to this new, evolving environment in how they assess and evaluate M&A opportunities as well as how they get deals done. 

Consumer and workforce behaviors will change as safety becomes of greater importance. This will likely increase the use of e-commerce as consumers look for contactless purchases, thereby increasing demand for quality consumer packaging and corrugated shipping cartons. The impact of these behavior changes on industry dynamics could shift the focus of dealmakers from end markets with lower recovery trajectories (e.g., automotive, construction, consumer products) to more attractive industries with potentially higher recovery trajectories (e.g., hygiene, pharma, nutrition).    

Companies will likely reassess the best use of cash which may or may not include M&A. Cash-rich companies will be well suited to seize opportunities to improve and consolidate position and invest in differentiated technology, critical infrastructure, etc. Private equity is well-positioned. At a time when the price of assets continues to decline, PE investors have access to significant capital for deals. Those willing to consider how this health crisis could change the direction of certain industries will be better positioned to make deals with lasting impacts.   

Supply chain optimization will remain a key driver as trade tensions and the decline in multilateral behaviors continue. This should increase the complexity both in terms of cross-border trade and investment and could present greater local deal opportunities. Companies interested in growing market share beyond their home country will need to re-evaluate business models and plans for integrating assets going forward. Technology and innovation will continue as popular themes, particularly with how the pandemic will continue to impact the way we work, live and consume. Such solutions will continue to be highly sought after and cross-sector companies who can bring key capabilities will be attractive targets for industry acquirers.

The ability of dealmakers to be agile and open to new approaches for getting deals done in this environment will be critical for success. Travel restrictions and growing "work from home" trends have prohibited traditional site visits, in-person management presentations and due diligence. Dealmakers should look to leverage various technologies for virtual meetings and site visits as well as data analytic resources to complete due diligence. 

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 Refinitiv 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 July 1, 2017 and June 30, 2020, 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

Jason Boyer

Canada Forest, Paper and Packaging Deals Leader, PwC Canada

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