Global Events & Trends

Editorial

While the mont of July typically is dry when it comes to news in this industry, I found no problem locating headlines—some of which we certainly could have done without.

At this moment, Londoners are still trying to determine how many have died as the result of another barbaric terrorist act. It is assumed this most recent atrocity was performed on the part of Al Queda-related Islamic extremism as the G-8 countries were meeting in Scotland to find answers to hunger in Africa and to address global warming. These were compassionately humane goals, countered by appalling brutality. My impression, like those of most civilized people in the world, is one of disgust for aggressors and one of sympathetic sorrow for the innocents who lost their lives, for their surviving families and friends, and for the injured who will continue to go about living with painful memories. How senseless an act and how empty a destiny for the attackers and the standards they represent.

Mundane as it must seem, we move on, frustrated at times but finding joy and being thankful for the small things in life. Such things keep us on an even keel with our lives and jobs in some kind of balance.

Other headlines pale in comparison but affect us nevertheless. The availability of several studies has been announced. The impact of their findings will vary according to perspective. A recent Piper Jaffray report, titled “Mergers and Acquisitions in the Packaging Industry—2004 Year in Review and 2005 Outlook,” is written by Doug Lawson and Chad Bell. “We believe there will be strong levels of M&A activity in the packaging industry in 2005,” says Lawson. “We see a number of factors that will drive this activity including: the favorable economic environment, favorable conditions in the lending markets, and large amounts of equity capital currently available to private equity firms.”

M&A activity in the packaging industry, Lawson believes, also “presents significant value creation opportunities, and there will be substantial consolidation over the next several years.” If you’re on the buying side, an acquisition can represent profitable growth opportunites. The report as well indicates packaging stocks outperformed the broader market and total deal value increased slightly.

A study on the 9.2 billion Euro European converted flexible packaging market, from market intelligence firm PCI Films Consulting Ltd., indicates “continued downward pressures on company profitability and the need for further rationalization of West European converting capacity.” Author Paul Gaster comments, “The highly competitive flexible packaging environment, especially in Western Europe, is becoming more intense. It is clear that overcapacity remains a problem there and increased interest from end-users in sourcing converted products from Turkey and some low-cost Asian sources is also creating pressures.”

With raw material costs continuing to rise rapidly and expected to remain high for the rest of the year, Gaster notes, “leading multinational brand owners are switching more of their production out of Western Europe to lower-cost East European locations and have begun to source their flexible packaging from local suppliers.” The presence of leading multi-plant converter groups is becoming stronger through acquisition as well as greenfield investment.

As confirmation of the findings in the previous studies, Thomas Blaige & Co. reports in its “Plastic Packaging Deal Briefing Annual Report 2004” that the year saw nearly a 20% increase in film and sheet deal volume. It reports 62 deals completed with the flexibles sector seeing an “extraordinary number of private equity deals, with many of these transactions completed by ‘serial’ private equity investors.” The briefing claims “global consolidation continued to drive plastic packaging merger and acquisition deal activity in 2004,” continuing a robust trend that began in 2003.

Lastly, as further indication of growth in emerging countries, Kiefel Extrusion, Worms, Germany, proudly announced it already has sold 20 complete lines through the end of May 2005. “The customers come from such countries as Egypt, Argentina, Korea, and Malaysia, to name just a few.”

As consolidation increases, so too grows global competition.



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