Packaging Materials M&A volume in 2023 was in one word, Muted. Another completed rotation around the sun and out from the remnants rises a new year of possibilities and opportunities.  The general consensus is that 2023 was a rebuilding type of year as packaging business owners acclimated to the beginning of a new economic cycle.  After realizing blistering paces of growth ascending from the short-lived, pandemic-induced recession of 2020, most packaging businesses, like plethora of sectors, are down materially compared to 2021 and 2022.

That said, do not misconstrue for distressed.  Quite the contrary, the packaging universe and its participants remain one of the most investable by way of private equity and debt capital markets.  Whether its resin producers-to-paper mills or film & paper converters – the current business climate is such that broad price increases have hit a ceiling; simply having access to supply is no longer the advantage it was several years ago.  This forces the competitive battlefield for new business wins (and therefore organic growth) back to the fundamentals:  innovations & solutions, quality, customer service.

While 2023 earnings may be suppressed compared to prior years, business sentiment optimism builds every week as interest rate hikes have peaked, jobs picture remains strong and (at least) anecdotal evidence a soft landing is possible – though we won’t officially know until after the fact.  Until then, business owners, including the institutionally-backed, are biding their time, resetting the go-to-market picture until an opportune moment arises to capitalize on a liquidity event.

Looking at the data – 2023 transaction volume in Packaging Materials was approximately one-half either of the two years prior but still managed to reach 2020 transaction activity levels.  Not surprising as much of the would-be volume from financial sponsor-backed packaging companies sat on the sidelines in 2023.

Packaging Materials valuations have declined from the highs seen beginning from H2 2020 through H1 2022.  That said, we are in a very different economic cycle from several years ago and valuations remain robust from a long-term historical perspective; currently in-line with post-Great Recession averages.

We anticipate a modest recovery in Packaging Materials transaction volume in 2024 as many business owners right-sized their organizations in 2023 and have now charted the path in anticipation of the next cycle of growth.

• Middle-market M&A volume generally began trending lower about one year ago and softness continued into the first half of 2023. Many completed transactions in H1 2023 tended to be carryover, or backlog, from 2022 deals well underway.
• Transaction volume in Packaging Materials was down approximately 25% in H1 2023 as compared to H1 2022.  Not surprising and is representative of broader declines across various sectors of global economies.  Even so, transaction activity was by no means decimated, rather more representative of levels seen pre-pandemic.
• For many packaging business owners, 2023 has been a stabilize and rebuild type of year coming off 2021’s and 2022’s pandemic induced highs.  While full-year 2023 M&A volume is likely to be muted year-over-year, we are optimistic the back half of 2023 will pick up steam and carryover to 2024.