Since the turn of the century, a number of events have materially transformed the competitive landscape for packaging converters. The global expansion of the converting supply chain; the rapid growth of equity capital availability; the increased scarcity of credit; and the increased activity in mergers, acquisitions, divestitures and recapitalizations. 
The need to accommodate the increased scope and scale required by customers has generated a need for converters to fund investments in technology and capacity, in many cases requiring owners to “double down” or “bet the farm” just to keep up, while larger competitors have access to record levels of institutional capital only available to a select group of large, well capitalized converters. 
Blaige & Company recently completed a 12 year study of the consolidation among the top 50 flexible packaging converters. The study shows that approximately 62 percent of the top 50 US players in the flexible packaging segment have either been eliminated or changed ownership (merged or sold) since 2000. Among the top 50 players that have not yet merged or sold (survivors/consolidators), those with access to private equity, public markets or corporate capital, are an average of 3.4 times larger than their counterparts (see Chart 1). 
The Darwinian forces of the market have segmented businesses into three categories: “leaders,” “followers” and “others.” The key take-away is that if consolidation has such a dramatic effect on the largest and strongest players (“leaders”), its impact on the midsize and small players is more extreme (“followers” and “others”). If these niche players want to survive and thrive, they will need to adopt a mergers & acquisitions strategy and start developing the ability to operate in a more institutional environment like their larger counterparts. 
The flexible packaging industry has relatively modern roots and a much greater-than-average level of fragmentation, thus the speed of consolidation of the flexible industry is unique and the effects of consolidation have deeply impacted industry participants. 
For example, the study shows that 66 percent of packaging converters reviewed have revenues of $100 million or less (see Chart 2 on page 30). Despite this, the large global consolidators have bulked up in size through organic and acquisition growth, the amount of available private equity capital has grown tenfold, and the average-size deal sought by private equity funds has tripled to $150 million. Concurrently, the number of banks providing deal financing has plummeted while the average-size transaction loan has skyrocketed. Thus, we have transitioned from the microdeal of the 1980s, to the lower-middle-market deal in the 1990s and 2000s, to the megadeal in the decade ahead. Uninvested “dry powder” in the hands of private equity firms has risen from nearly $50 billion to nearly $500 billion over the past decade, with 90 percent of the increase occurring in the past five years (see Chart 3 on page 30). 
With this huge overhang of uninvested private equity capital, even the consolidators of the packaging industry are under the microscope and must apply “institutional” standards to their M&A and strategic activities. This does not guarantee success, as Alcan, Pliant and Pactiv discovered. 
We have witnessed many evolutionary trends in deal structures and transaction practices among packaging converters over the past three decades. For example, the IPO window has recently opened and consolidators like Berry Plastics have benefitted. Owners of privately held and family owned packaging businesses will find it increasingly difficult to achieve premium valuations and to source funding for their businesses if they do not possess the characteristics that lenders, strategic buyers, or private equity investors (institutions) now seek. An analysis of the consolidation in packaging shows that as we move into the next decade, they will increasingly be required to learn and apply strategies and practices typically utilized by institutions. 
Strategies for converters of all sizes to consider include:
  • “Institutionalization,” “professionalizing the organization,” and the picking of “low-hanging fruit” have been strategies historically reserved to professional financial and corporate buyers. Understanding and adopting these processes will give owners of small to midsized businesses an advantage, not only when dealing with these buyers, but also as they become sophisticated buyers themselves.
  • Meaningful, robust budgeting processes, management succession in place, detailed competitive analysis, and profitability management to incorporate product-line profitability and costing models are important.
  • Identifying complementary acquisition targets and keeping in touch with competitors is considered a value-enhancing activity. Showing evidence of a successful acquisition program will impress.
  • On the M&A side, securing professional representation and preparing a credible business plan, a polished management presentation and a virtual (online) data room are expected. After all, despite having firsthand experience in selling businesses, private equity investors bring in specialists to handle the sale process as it has been proven to be a key element to maximizing results in a transaction, the absence of which can result in a 10-30 percent reduction in the sale price.
While private equity investors, as a rule, avoid selling on a “one-off” basis, they go to great lengths to find one-on-one deals to purchase directly from an owner as they represent one of the most, if not the most, profitable acquisition strategies. Fundraising pitch books prepared for potential fund investors identify the “proprietary deal flow” pipeline as a core value-creation strategy. 
Further, both private equity and strategic buyers keep multiple “irons in the fire.” They look at and visit dozens of companies yearly, and while they make offers on several, the average middle-market equity fund completes only one to three deals per year. Thus, a deal, its price, terms and other characteristics are compared to the universe of opportunities available at a given moment and decisions are made to proceed as planned, abort, or to proceed at a different (typically discounted) price. Since the landscape of opportunities is dynamic, the position of a company on the buyer’s priority scale also changes. Having professional representation to consistently probe and verify that you are the top deal in the “system” is invaluable, and will result in a higher transaction value.
Businesses “For Sale by Owner” are perceived as less sophisticated and less competitive, signaling “discount pricing” to the most capable institutional market buyers. If a confidential memorandum and data room are not prepared in advance, many investors will jump to the next deal in which the investment has been made to provide a methodical process with organized data. Sellers are in competition with many other potential deals, so creating a quality work product describing the uniqueness of your business is imperative. Many private equity firms receive multiple deal books weekly. Those that are well-prepared and tell a great story are perceived as attractive businesses and are put on the top of the pile. Others never get reviewed at all. You may be told by potential suitors that the lack of a “book” and data room are actually preferred, however this is very unlikely to be the case where a premium price will be offered.
Finally, it is important to involve a professional adviser early and share the ups and downs of the business. Together, the business owner and the advisor can formulate an M&A strategy that will have very valuable long-term benefits even if they decide not to pursue a transaction in the end. The decisions will have been made strategically for the business and not as a reaction to short-term influences.
These are just a few examples of how to secure and maximize the value of a flexible packaging business. Owners spend a tremendous amount of time and energy on procuring raw materials, attending global trade shows to procure capital equipment and cultivate customer relationships. It is likely that most owners will need to re-evaluate their priorities if they desire to make it all worth it at the end of the day. This applies to the vast majority of packaging company owners as they fall into one of the three categories the market dictates. While “leaders” and “followers,” whose destiny is largely fixed, make up only 20-40 percent of the universe, the “others” have the opportunity to learn and incorporate the strategies being used by large consolidators, allowing them, too, to become “leaders.”
They have a choice to seize the opportunity. Contact us to learn more about the 12 year study and our capabilities to help you succeed.  
Blaige & Company
About the Author
Thomas Blaige is chairman and CEO of specialist packaging transaction advisory firm Blaige & Company. Contact Blaige to learn more about the 12 year study at