‘What is the attraction for investors in carton packaging companies?’

In his presentation, European Packaging Industry Business Outlook, at the ECMA Congress 2015, in Bucharest, Romania, last week (September 10, 11), he spoke about the importance of private equity in carton packaging and the global packaging market. ​

Private equity funds raised $1,153bn for acquisitions in 2014

Mockett said some of the biggest deals that have happened in the carton industry have been via private equity firms and Moorgate Capital itself has worked on deals including Contego F&B cartons to Graphic Packaging; Contego Healthcare to Essentra; and Multi Packaging Solutions (MPS) to The Carlyle Group.

“On all these deals private equity is turning up all the time. These are some of the biggest deals in cartons so private equity is an important investor that we need to understand​,” he added.

“Not all private equity firms are the same and they do have different strategies, some are looking for businesses firing on all cylinders, others want to invest in orphaned assets and to put them in the right direction​.

“The size of the deal varies from house to house, aside from playing down the debt they want to grow the business​.”

Mockett said global private equity funds raised $1,153bn for acquisitions in 2014 and the US alone raised almost $200bn last year.

Five deals to hit the headlines in 2015 include; RockTenn​ and MeadWestvaco (MWV); Ball​ and Rexam, O-I​ and Bennu Glass Apollo​ and Verallia  and Constantia and Afripack.

“The growing population is driving demand but most importantly, the rising middle class has a massive impact on the amount of packaging that is used. People on-the-go are eating packaged goods, they are buying luxury products it all has a big impact on the use of packaging​,” said Mockett.

Packaging plays an important role in reducing food waste

“When people start to have a disposable income of any scale, they start to eat protein, that means more cattle and sheep and looking for ways to reduce waste in the food supply chain and packaging plays an important role in that​.

“These are things that attract investors to the industry because of the value added, end performance. It’s good news for private equity firms when they are thinking about investing in the carton sector​.

“The other important factor is current low interest rates. We all know what they are today but where will they be in six months’ time? There is an opportunity for private equity firms to buy a company using the current level of interest and reap the benefits of the current low rates​.”

Mockett said there are a lot of aspects of the packaging industry that specifically attract private equity; from the performance of the packaging shared price index; its defensive and counter-cyclical nature, and cash generation aspect - people using that to pay down debt, typically packaging businesses are asset rich as long as the assets aren’t too old.

Other advantages include the attraction of a blue chip clientele, supplying products to Procter & Gamble, and GlaxoSmithKline, for example.

“If I buy a packaging firm, I am buying exposure to those blue chip companies, it’s a way through the back door of an attractive revenue stream, that’s partly driving interest in this sector​.

“There is underlying growth in western Europe from single people households and more working mothers wanting to buy convenience meals, add that all up and you have an attractive sector for people to invest in​.”