News

Consolidation in the European forest, paper and packaging (FPP) sector is urgently needed, according to a report by PricewaterhouseCoopers.

Although deals worth $6bn were concluded in Europe in 2007, up from $3.3bn in 2006, FPP companies are coming under increased pressure from rising fibre and transportation costs, soaring energy prices, lacklustre demand and emerging markets.

The weakness of the US dollar compared with the euro, the Brazilian real and the Canadian dollar also had a substantial impact on the FPP industry last year.

Private equity (PE) continued to play a key role in mergers and acquisitions in North America, with more than $10.4bn in deals, around 38%, including some PE participation.

There has also been renewed activity in public markets with some significant listings. In Europe, Anglo American spun-off Mondi in order to create an independent player in the paper and packaging market.

Private equity owned Smurfit Kappa Group also went public, giving the company access to additional equity in order to pay down debt.

New dealmakers also emerged, such as New Zealand's Rank Group, which PricewaterhouseCoopers has suggested could be a potential purchaser of Amcor's corrugated box businesses, adding to its 2007 acquisition of drinks carton producer SIG and the purchase of Alcoa's non-fibre packaging and consumer businesses earlier this year.

PricewaterhouseCoopers global forest, paper and packaging leader Clive Suckling said total deal values had reached $11.8bn by the end of the first quarter in 2008, but the outlook for the rest of the year was uncertain.

"On the one hand, developments in financial markets are making for a tougher deal-making environment – on the other, 2008 could still emerge as a record-breaking year if long-overdue consolidation in Europe takes place," he said.

"Looking even further ahead, we are seeing emerging investment themes, particularly around sustainability, which continue to drive activity."

There were 370 deals of note in 2007, compared with 280 in 2006, but the average size of deal dropped from $169m to $135m.