Like in many other industries, the COVID-19 pandemic has created major disruption in the packaging sector. In this article, Barry Sheehan, a Director of Arrowpoint Advisory, the lower mid-market financial advisory team of Rothschild & Co., looks into the key short and long-term trends that may emerge from this disruption and how it might impact investment and M&A activity in the packaging sector.
A resilient sector
The global packaging sector is a vast and relatively mature market. While some segments are growing faster than others, the overall industry growth rate tends to broadly track GDP in the long run. In the decade that followed the Great Financial Crisis, we witnessed strong growth across multiple sectors of the economy and investors, seeking returns on their capital, naturally favored assets that could access this growth.
Although the link to GDP makes packaging companies somewhat cyclical in nature, they do tend to operate in less-discretionary end-markets, such as food and pharmaceutical products. Because of this, the industry has historically been seen as having relatively defensive characteristics. As we enter a period of heightened levels of uncertainly, investors may place greater value in businesses operating in more ‘resilient’ sectors, such as packaging. We have already seen demand for packaging materials spike in recent weeks in areas such as food packaging, and especially shelf-ready packaging for the grocery industry, driven by retailers’ need to meet rising consumer demand and to restock shelves quickly.
Read the full story from Packaging Europe here.