The big beast in terms of industry mergers and acquisitions in 2023 was that between Smurfit and WestRock, two packaging groups that already operate on a global scale. The integration will expand the ability to service global brands at a time when the importance of recyclable packaging has never been greater. The deal will extend Smurfit’s footprint in North America and expands what WestRock could offer customers in Europe, so seems like a comfortable win-win. But as with all deals of this size, there are some regulatory hurdles to overcome to ensure that others can compete with the a group that could command sales of $3.6 billion a year.
At the other end of the scale are those business combinations where neighbouring businesses combine either because a retirement is planned, costs need to be reduced, or business has shrunk to the point that combining forces makes sense in terms of running one factory instead of two. Sometimes these deals are official, where multiple shareholders are involved or involve multiple creditors. At other times deals can be done with a firm handshake. The former, for all sorts of reasons, is preferred.
In between there are acquisitions where the company buying is planning expansion at a time when organic growth is tough. Acquisitions can help a business diversify into a sector where it has no or limited expertise. This continues to explain the appeal of display print businesses to commercial printers.
There is also a trends for private equity backed European groups to acquire previously independent companies to build sizeable groups.
This is well underway in the label sector where the trend is led by Asteria, a Belgian group, and All4Labels, a group based in Hamburg. These are taking over well run UK businesses and have taken on CS Labels, Berkshire Labels and Compliance Labelling Solutions (by Asteria) and OPM, Springfield and Print-Leeds (All4Labels). These follow on from an earlier wave of label company acquisitions which built CCL, MCC and Eurostampa as international label converting groups. The new wave seems content currently to retain the branding of the businesses they have acquired, for now at least.
The same impetus has spurred deals for flexible packaging printers and is starting to do so for carton companies. In the last year, the Carton Group, a PE backed German enterprise has bought Wrapology and latterly Duncan Group. But established European groups are also looking at UK expansion: Autajon bought Simply Cartons in August, followed by Royston Labels, both with luxury UK drinks brands in mind; while in 2022 Firstan Cartons ended up as part of giant conglomerate GPI. Again further deals can be expected as brands look for a wider international coverage from their suppliers.
This marks out packaging as a growth sector, but one too where modernisation of installed equipment is underway which may be beyond the means of an independent business and increasing the appeal of joining a larger grouping.
The majority of deals though fall under the consolidation imperative. Outside packaging and perhaps web to print, there is little organic growth for printers. Those that want to expand will need to acquire. Simon Smogur, CEO of Handel Group, believes that to be a strong commercial printer a company will need critical mass. Further deals can be expected from this business.
Other deals are more opportunistic, someone spotting a spark when another business hits the rocks for some reason. Pollards was quickly off the mark when BCQ collapsed while others were showing interest in the business but were slower to the finishing line for that deal. The printer that is best placed to respond, which is prepared for a deal, can often win if its rivals need to convene strategy meetings.
The question that has to be addressed is whether it is better to buy a business that is solvent or whether to take on a business from administration. In either case, it will often be possible to fund the acquisition through raising finance against capital equipment either to continue using that asset or by selling the excess. When buying from administration, that revenue may belong to creditors, narrowing the scope for raising finance.
Paragon has been supreme at buying companies from administration, gaining because these companies are unencumbered by debts as those are now the administrators’ responsibility. But it is a well tuned operation that is able to absorb a new business. This may not be the case for others. A failed business will have often have a trail of problems including suppliers that have not been paid, staff that have departed (if they are able) and customers that have been let down by late deliveries or variable quality. Putting that right may take too much management time to be worth it. Buying an ongoing business on the other hand brings with it customers, staff and suppliers, even if technology might be lagging behind the curve.
For those wanting to sell, the management buyout remains an option, though perhaps not as popular as it once was. A number took place in the UK last year with Dayfold, Blackwell Print and FCS Laser Mail at the head of the list. Failing that a sale to an employee owned trust can reward those that have worked for the business over many years and can enable an exit for the owners if there is no family succession plan. In both cases the deals being worked out now involve little by way of lump sum payments and instead will run to staged payments over an extended period, perhaps of some years.
In short the rules of the game have not changed, even if the stakes have.
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