BOSTON CHICAGO LOS ANGELES PHILADELPHIA

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1 Industry Coverage Report Market Intelligence for Business Owners Q Capstone Partners Investment Banking Advisors BOSTON CHICAGO LOS ANGELES PHILADELPHIA

2 Industry Coverage Report MERGER & ACQUISITION ACTIVITY CONTINUES REBOUND CAPSTONE PARTNERS LLC David Bench Direct (949) Tracy Patch Vice President Direct (949) The packaging industry continued to see an uptick in merger and acquisition activity in 2011, with the number of transactions exceeding 85, a figure that represents a 30% increase over the number of deals recorded by the industry in Activity has picked up in conjunction with the industry s noticeably improved operating performance. Following the recessionary decline of 2009, the industry improved somewhat in 2010, and made a marked improvement in Standard & Poor s currently rates the US packaging industry as mostly stable, stating that companies in the industry improved their operating performance in both 2011 and 2010, and they are now in their healthiest condition in several years. S&P notes that, as a group, the industry has increased both revenues and earnings. Some of the improvements have resulted from expanded product offerings, geographic extensions and/or investments in emerging markets. Many companies have also been successful in raising prices and making productivity gains. As a result of these and other improvements, buyers already operating in the packaging industry are finding themselves in a better financial position to make acquisitions. Meanwhile sellers, with healthier companies and several years of improving results under their belts, are better positioned to sell at attractive values that are more likely to meet their expectations. M&A Activity: Industry Number of Transactions Manufacturers Equipment Solutions and Supplies Distributors Source: Capital IQ, Capstone Partners LLC research We expect M&A activity in the packaging space to rise further in 2012, as the industry s revenue and earnings continue to improve. Moving forward, we expect to see an increasing number of privately held packaging business owners looking to exit their businesses via an M&A transaction in order to tap the opportunities represented in this market as well as to take advantage of the current capital gains tax rate window. 1

3 MARKET OBSERVATIONS Corporate buyers are currently in a very strong financial position, with the highest cash reserves on record. With the increase in M&A activity in the packaging industry, we have observed several market trends, including the following: Plastic is Especially Active: The packaging industry has seen a surge in plastic packaging transactions recently. The sector is especially ripe for acquisitions due to the stability and growth opportunities of the space. Plastic packaging is gaining market share at the expense of other types of packaging, largely due to the advantages that plastic packaging offers in the way of cost, aesthetics and superior barrier characteristics. Globalization and consolidation, as well as evolving consumer demands and resulting new product opportunities, are all contributing to a healthy demand for plastic packaging. Industry Transactions by Material Plastic 50% Paper 38% Metal 6% Glass 2% Labels 4% Source: Capital IQ, Capstone Partners LLC research Corporate Buyers Dominate: Strategic buyers dominated M&A activity in the packaging industry in 2011, accounting for 90% of the closed transactions in the sector. Corporate buyers are currently in a very strong financial position, with the highest cash reserves on record. They are deploying their cash reserves to make opportunistic and strategic acquisitions. These corporate buyers are generally pursuing opportunities that fill a strategic need and are complementary to their existing businesses. Among the strategic motivations behind their transactions, corporate buyers are looking for acquisitions that can offer the following advantages: Market share gain Geographic footprint expansion, allowing for greater customer reach and lower freight costs New technologies and manufacturing capabilities Additional products that expand the breadth and depth of their product lines New customers and markets, resulting in attractive cross selling opportunities 2

4 Valuation multiples are trending higher, in part a result of higher quality businesses that have rebuilt following the recession and now represent attractive targets. Private Equity Remains Interested: Private equity groups (PEGS) were out bid by corporate buyers in 2011 but remain interested in packaging, as they continue to be attracted to the long term economic resiliency of the sector and the opportunity to acquire healthy companies in the space. These buyers appreciate the non cyclical nature of the business and are particularly focused on middle market packaging companies due to continued tight credit markets for larger transactions. With an estimated $400 $450 billion of equity capital to invest, private equity buyers have ample funds for acquisitions. Furthermore, the availability of debt to augment their equity has made it easier for buyers, particularly PEGs who generally require leverage to fund their transactions, to acquire packaging companies. Industry Transactions by Buyer Type Private Companies Public Companies Private Equity and Institutional Investors Source: Capital IQ, Capstone Partners LLC research Valuations Improve: Valuation multiples are trending higher, in part a result of higher quality businesses that have rebuilt following the recession and now represent attractive targets. In addition, pent up demand and the resulting competition among buyers is helping to drive up valuations, especially for companies with healthy margins, above average growth and strong market positions. As stock prices in the industry improve, strategic buyers are willing to increase the multiples they pay for transactions. M&A Outlook is Positive: Despite recent activity, the packaging industry remains highly fragmented, with plenty of room for additional combinations. Increased demand from customers who want to work with fewer packaging suppliers that can provide a broader range of products and support services will continue to drive the need for strategic add ons. The outlook for M&A in the packaging industry is positive. Our optimism is based on strong market fundamentals, including an abundance of cash in the hands of corporate buyers, a large overhang of cash that needs to be deployed by the private equity community, commercial lenders continuing to loosen their purse strings, continued low interest rates and a gradually improving economy. 3

5 RECAPITALIZATIONS OFFER EXIT ALTERNATIVE the company s owners were looking to realize some of the value they had built in the firm, but they were not ready to exit the company entirely. They had plans for growth, and felt they could achieve their goals quicker with an equity partner. Private equity groups have consistently been interested in the packaging industry over the years and, although we saw fewer deals completed by this buyer type in 2011, we expect PEG buyers to be more active in the packaging space in 2012 as they work to invest their large capital overhang coupled with improved debt markets. With that in mind, the following transaction illustrates how private equity groups can help middle market packaging business owners accomplish a successful business exit. Charter Equity and RFE Investment Partners Acquire Brook & Whittle Limited: Founded in 1996, Brook & Whittle is a premier printer of decorative label solutions for beverage and personal care products. In 2009, the company s owners were looking to realize some of the value they had built in the firm, but they were not ready to exit the company entirely. They had plans for growth, and felt they could achieve their goals quicker and with a lower risk profile by teaming up with a financial partner. Capstone bankers served as the exclusive financial advisors to Brook & Whittle in its recapitalization by two private equity groups. With this transaction, the owners of Brook & Whittle realized partial liquidity, while at the same time retaining a substantial ownership stake in the company. The owners viewed their new equity partners as a source of capital to fuel aggressive growth in the company. Specifically, Brook & Whittle was looking to significantly expand its operations and capabilities, enter new markets, strengthen existing customer relationships and generate new ones. Growth Ensues: For several years the private equity partners contributed to Brook & Whittle s growth by leveraging their extensive operational expertise, financial acumen and broad business network. Specifically, the partners recruited an experienced CFO to upgrade the company s financial function, established key business metrics to provide actionable information to the executive team, worked with management to expand their sales efforts to new customers and markets, and opened a new facility focused on high volume production of pressure sensitive labels. Brook & Whittle Acquires Packstar Group: In 2011, Brook and Whittle acquired Packstar Group, a sizable firm of 100 people that offers a full range of shrink sleeve packaging products. With the acquisition, Brook & Whittle extended its product portfolio, expanded capacity and added a talented group of professionals to its staff. The acquisitionbrought together two innovate leaders in their respective fields. Next Step? Brook & Whittle continues to seek add on acquisitions, looking for leading niche manufacturers of high end labels for consumer product companies. Backed by its private equity partners and the original ownership group, the company continues to build shareholder value. At some point in the future, the company will likely undergo another liquidity event, representing an opportunity for the original owners to exit completely. Such events can include a sale to a corporate buyer, a second recapitalization by a new private equity group, or an initial public offering (IPO). Although the original owners now have a diluted share in Brook & Whittle, because the next liquidity event is expected to occur after the company has achieved significantly higher revenue and profitability thresholds, the next event could represent an even larger financial transaction for the owners than the original recapitalization. 4

6 SELECTED PACKAGING TRANSACTIONS Enterprise EV / LTM Value Date Target Target Business Description Acquiror ($mm) Revenue EBITDA Mar 12 Leone Industries, Inc. Manufactures recyclable glass containers for food and liquor and organic product companies. Ardagh Group S.A. Mar 12 Vanga Products (Plastics) Inc. Manufactures polyethylene and polyethylene terephthalate bottles and jars. ALPHA, Inc. Mar 12 MegaFlex LLC Manufactures roll stock, shrink film and pouching materials. Umax Ltd. Feb 12 Arminak & Associates, Inc. Manufactures packaging solutions for the cosmetic, personal care and cleaning products industries. Rieke Corporation $ x Feb 12 Varicon, LLC Manufactures intermediate bulk containers (IBCs) and plastic drums. MAUSER AG Feb 12 Temple Inland Inc. (NYSE:TIN) Manufactures containerboard and converts it into International Paper Co. a line of corrugated packaging products. (NYSE:IP) $4, x 10.1x Feb 12 Jan 12 Reliable IntraPac LP Manufactures and supplies boxes, cartons, POP displays, kraft, sheets and pads. Manufactures specialty packaging solutions for pharmaceutical, personal care and food & beverage. Paper, Pulp & Film, Inc. CI Capital Partners LLC Jan 12 Buckell Plastic Co., Inc. Manufactures custom light gauge plastic thermoforming packaging products. Rohrer Corporation Jan 12 Trilogy Glass &, Inc. Provides glass bottles for wine packaging. TricorBraun WinePak Nov 11 Nov 11 Nov 11 Nov 11 Polytop Corporation Liqui Box Corporation Corbi Plastics, LLC Winder, LLC AccelPak Incorporated Plus, LLC Shield Pack, LLC Hexacomb Corporation Colorado Container Corporation CM, Inc. Eyelematic Manufacturing Company, Inc. Ultravac Solutions LLC Manufactures and supplies dispensing closures and systems for the packaging industry. Produces bag in box flexible packaging and related filling equipment systems. Manufactures and supplies plastic packaging products. Distributes packaging supplies to retail and industrial customers. Manufactures equipment for the packaging of food and beverages. Provides custom packaging solutions and contract packaging and fulfillment services. Produces and supplies barrier and non barrier line packaging products. Manufactures honeycomb and other packaging products. Manufactures corrugated packaging and display products. Manufactures aluminum foil containers and plastic packaging/food containers. Manufactures metal and plastic packaging products for the cosmetic industry. Distributes packaging material for food and other consumables. Nov 11 Barger, Inc. Manufactures sterile and non sterile packaging solutions for medical and pharmaceutical markets. Oct 11 U.S. Corrugated, Inc. Produces corrugated packaging solutions. MeadWestvaco Corporation (NYSE:MWV) The Sterling Group, L.P. ORBIS Corporation Piedmont National Corporation Chantland MHS Global Plus Inc. Bemis Company, Inc. (NYSE:BMS) Boise Paper Holdings, LLC $ x 9.5x Corp. of America (NYSE:PKG) D&W Fine Pack, LLC Albéa UltraSource Placon Corporation KapStone Kraft Paper Corporation $ x Oct 11 GMI Group Manufactures corrugated boxes including micro flute clamshells, lids, film and foil laminates. Rock Tenn Co. (NYSE:RKT) $ x Oct 11 Innovative Molding, Inc. Manufactures plastic closure packaging products. Rieke Corporation $27.0 Oct 11 Oct 11 Madcar Company, Inc. YORK Label, Inc. Provides packaging and fulfillment services to the pharmaceutical and health & beauty industries. Manufactures labeling and packaging solutions for consumer, medical and pharmaceutical markets. Mailmen Inc. Multi Color Corp. (NasdaqGS:LABL) $ x 9.4x Sep 11 Marfred Industries, Inc. Manufactures packaging products. Amcor (USA), Inc. Sep 11 Paris, Inc. Manufactures folding paperboard cartons. Huhtamaki Americas, Inc. $ x LTM = last twelve months; EV = enterprise value Sources: Capstone Partners LLC research; Capital IQ; public filings and press releases Mean 1.1x 9.6x Median 1.1x 9.5x 5

7 THE PACKAGING TEAM David Bench, (949) David joins Capstone as a in charge of the Western Region, based out of Los Angeles. Prior to Capstone, David managed the Western region for Morgan Stanley Smith Barney s Capital Strategies Group and its predecessor, Citi Capital Strategies. David has focused on middle market investment banking for over 23 years and the lead banker in over 250 M&A transactions involving both domestic and foreign corporate buyers, as well as leveraged recaps with private equity sponsors. David s achievements in the investment banking industry have gained national recognition by The M&A Advisor: in 2008, one of his transactions was awarded the Energy Deal of the Year and, in 2007, he was awarded Middle Market Financing Professional of the Year. Mr. Bench holds a BS and an MBA in Finance from Brigham Young University. He is a Series 7 and 63 Registered Securities Representative and a Series 24 Registered Securities Principal. Tracy Patch, Vice President tpatch@capstonellc.com (949) Tracy is a Vice President in the Los Angeles office, supporting the management of the Western Region. Prior to Capstone, Tracy worked as a senior banking professional in Morgan Stanley Smith Barney s Capital Strategies Group and its predecessor, Citi Capital Strategies. She possesses over seven years of experience in middle market investment banking, working on both domestic and cross border transactions. Her previous finance experience includes working in the hedge fund industry with Collins/Bay Island Securities LLC and Talisman Capital Partners. Prior to that, Mrs. Patch worked with institutional fixed income sales at both Vining Sparks IBG, LP and Robert Thomas Securities, Inc. Tracy also enjoyed tenure in management at The Disney Company. Mrs. Patch holds an MBA from Pepperdine University and a BS in Finance from Miami University of Ohio. She is a Series 7 and 63 Registered Securities Representative. Completed Transactions has recapitalized with 6

8 ABOUT CAPSTONE PARTNERS Capstone Partners LLC is a leading national investment banking firm dedicated to serving the corporate finance needs of middle market business owners, investors and creditors. The firm provides merger & acquisition, private placement, corporate restructuring, valuation and financial advisory services. Capstone maintains various industry specialties including packaging. The firm also possesses merchant banking capabilities to actively co invest in transactions. Additional information about Capstone Partners can be found at NATIONAL AND REGIONAL LEADERSHIP TEAM NATIONAL NORTHEAST REGION CORPORATE RESTRUCTURING John Ferrara Kevin Jolley Brian Davies President, Managing Partner (617) (617) (617) jferrara@capstonellc.com kjolley@capstonellc.com bdavies@capstonellc.com MIDATLANTIC REGION VALUATION ADVISORY Eric Williams Ron Adams (215) (617) ewilliams@capstonellc.com radams@capstonellc.com MIDWEST REGION Ted Polk (312) tpolk@capstonellc.com WESTERN REGION David Bench (949) dbench@capstonellc.com Capstone Partners Investment Banking Advisors Capstone Partners LLC. All rights reserved.