SOURCE - The Target Report
The consolidation of the printing and packaging industry continues to pick up momentum as new financial players enter the field. The new contenders, mostly private equity firms with backing from multiple investors, usually move into an industry segment with an initial acquisition, a transaction that drives a stake in the ground, a deal that announces their intention to invest in and grow a business in that specific sector. That first foray into the particular business segment is likely to be a company that has sufficient size and profitability to be used as a launching pad for further acquisitions. From that initial platform investment, the investment firms aggressively seek out and complete multiple sequential bolt-on acquisitions to expand their footprint in the targeted market.
This trend has been most evident and prevalent in the label and flexible packaging segments where the PE-backed frenzy has, over the past several years, reached a fever pitch of activity. Multiple private equity buyers vying to build out their platforms to achieve significant market gravitas has led to sky-high purchase multiples for label printing companies, at least judged within the value context of the overall printing and packaging industry segments.
As we have noted in previous Target Reports, our expectation has been that PE-driven consolidators would become interested in other print-centric segments, especially the manufacture of folding cartons. Similar to labels and flexible packaging, folding carton manufacturing is characterized by recurring revenues, strict color management, adherence to a variety of technical requirements related to the industry vertical being served, and a constant proliferation of brand extensions which requires continuity of customer interaction. These industry features are attractive to private equity firms that operate in the lower middle market, exactly the level of many family-operated privately-owned folding carton companies.
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