In mid-July 2014, Jaime Caruana of the Bank for International Settlements told the Daily Telegraph that the world economy is “more fragile than before the great crash of 2007”. Yet since then, a number of leading global stock markets have neared or even beaten all-time highs, such as the US, Germany, Switzerland, and United Kingdom. But at the same time, some major economies seem to have slowed; in October, Germany’s government, for instance, downgraded its forecast for economic growth for 2014, from 1.8% to 1.2%. The US government is tapering out quantitative easing, whereas the Japanese government announced a significant new wave, around US$60bn, of QE at the start of November. So what will be the impact of these conflicting signals on the packaging business in 2015?
Fortunately for packaging, large portions of the sector are defensive or even countercyclical. Furthermore, there are some very compelling global macro opportunities for packaging now and going into 2015: rising population and burgeoning middle classes means the demand for food, and protein in particular, is soaring. That drives demand for packaging products for the food supply chain. In the western world, ageing population is driving demand for pharmaceuticals and personal care, while in emerging markets huge populations are often consuming such items for the first time.
As a proxy for overall industry performance, when we look at packaging share prices since the start of the credit crunch, many of the public packaging companies have outperformed many better-known names in other industries, such as automotive, where there is a substantial element of discretionary spend.
As a consequence of this robust performance, packaging companies, from the very largest down, have been making significant acquisitions. This trend will continue into the year to come as packaging’s multi-national clientele seek support from their trusted packaging suppliers when expanding in new markets, such as BRICs and MINTs.
It’s fair to say that global economic uncertainty can be another driver of M&A: as companies shore up positions in more mature markets and combine businesses to make manufacturing footprints more competitive and efficient. Additionally, with the changes in the supply of some raw materials, such as polymer production from shale gas, packaging converters are scaling up to benefit. Finally, low interest rates will also spur on acquisitions and this will also drive continued investment in packaging by private equity investors.
Mergers and acquisitions take time. But given the transactions which are currently in the pipeline, 2015 could well be the best year for packaging M&A yet, exceeding the value of US$33bn reached in 2007. The good news for packaging businesses is that more consolidated industries can expect to generate better returns and are therefore more sustainable.