M&A in the labels and packaging industry: What you need to know now
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Over the last couple of decades, labels and packaging have been a boon for M&A. Indeed, our industry has been part of some of the world’s most significant strategic and private equity transactions.
We’ve had all the elements for M&A success, most notably:
- High‐profit operation
- Near‐ and long‐term industry growth
- Double‐digit market segment growth
- Fragmented industry with potential to consolidate
- Opportunities in various categories / segments to gain advantage or dominate
- Low capital commitment
- Ability to find numerous financing sources for deals
While the majority of these elements remain, the last — and most important one in fueling activity — is falling short. Economic changes and uncertainty have driven rising economic skepticism. Thus, our current market faces hurdles in finding, funding, valuing and completing M&A deals. And this is quickly crushing many would‐be opportunities for our industry’s entrepreneurs.
Let’s look at today’s most notable issues:
Higher cost of capital — Over the last 10 years, global business has enjoyed some of the lowest lending rates for everything from capital equipment purchases through acquisitions. With interest rates escalating, deals are a lot more expensive than they were in previous years. While we are perhaps nearing an end to a lengthy cycle of rate increases, the cost of capital is now higher than it’s been at any other time in the last five years.
