Packaging M&A Boom or Bust

Transcription

1 Packaging M&A Boom or Bust Will Frame Managing Director Deloitte & Touche Corporate Finance LLC October 3,

2 Table of Contents Recent Market Turmoil Let s Peel Back the Onion The M&A Continuum Market Fragmentation So, What s Next? 1 1

3 Recent Market Turmoil

4 The Credit Crunch The $24 billion debt financing for Kohlberg Kravis Roberts & Co.'s $26 billion leveraged buyout of First Data has been delayed It is the second delay for the payments processor's debt, which KKR and its banks originally hoped to sell to investors earlier this summer. The Wall Street Journal Myers says GS Capital Partners buyout delayed Becomes latest leveraged buyout to be squeezed by tightening credit markets - Reuters Perceived Armageddon in the debt markets likely [to] give the strategic packagers considerable bargaining power over the sellers Wachovia Capital Markets, LLC It was widely reported that [Home Depot] was considering a major markdown [the company s] willingness to take such a hit illustrates how the credit and housing market turmoil has battered deal making on Wall Street. Forbes 3 3

5 Let s Peel Back the Onion

6 Public Market Performance Enterprise Value/EBITDA Multiples Net Debt/EBITDA Multiples 10.0x 9.1x 10.0x 7.5x 7.3x 7.5x 7.6x 8.0x 7.5x 5.0x 5.0x 2.8x 2.5x 2.5x 1.3x 2.0x 1.7x 0.5x 0.0x Bemis Pactiv Sealed Air Sonoco Winpak 0.0x Bemis Pactiv Sealed Air Sonoco Winpak Source: CapitalIQ 5 5

7 Public Market Performance 160 DTCF Flexible Packaging Index vs. S&P Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Flexible Packaging Index S&P 500 Note: DTCF Flexible Packaging Index includes Bemis Co. Inc., Pactiv Corp., Sealed Air Corp., Sonoco Products Co., WiinPak Ltd. Source: CapitalIQ 6 6

8 Private Equity Funds Raised U.S. Buyout Funds Under $1 Billion U.S. Buyout Funds Over $1 Billion Dollar Value (In Billions) No. of Funds Dollar Value (In Billions) No. of Funds $ $ $30 $26 $27 $27 $27 $27 $27 $26 $ $90 $72 $84 $68 $76 $84 $100 $98 $ $ $ $ $30 75 $ Q1 0 $ Q1 0 Cumulative Uninvested Capital Active Funds Cumulative Uninvested Capital Active Funds Source: Thomson Financial 7 7

9 Private Equity Attracted to Packaging Private Equity Group Sun Capital Partners, Inc. Falcon Investment Advisors, LLC Prudential Capital Group Apollo Management, L.P. Graham Partners AEA Investors LLC CCMP Capital Advisors, LLC New York Life Capital Partners, LLC Stonehenge Partners, Inc. Pegasus Management Group Stonehenge Capital Company, LLC Flexible Packaging Portfolio Company Autobar Packaging Group Exopack Holding Corp. Ampac Packaging, LLC Berry Plastics Group, Inc. Pregis Corporation Pliant Corporation Wisconsin Film & Bag Inc. Plastic Packaging Technologies, LLC Shield Pack LLC 8 8

10 Packaging Suits Private Equity s Core Investment Criteria Characteristics Desired by Private Equity Packaging Sector Stable Cash Flows Dependable End Markets Opportunity for Further Consolidation Asset Rich Defensive!!!!! 9 9

11 The M&A Continuum

12 Innovation Drives Growth Fueling Consolidation Innovation Build scale Consolidation Opportunity for new development M&A Continuum Market penetration Research and development Market solutions and manufacturing expertise Growth

13 Market Fragmentation

14 Fragmentation in the Packaging Industry North American Converters of Flexible Packaging North American Producers of Metal Food Cans Other 63% Bemis 10% Sealed Air 6% Alcan Packaging 5% Printpack 4% Pliant 4% Crow n Holdings 19% Other 12% Silgan 50% Berry / Covalence 4% Pactiv 4% Ball Corporation 19% North American Producers of Glass Containers North American Producers of Plastic Beverage Containers Anchor Glass 18% Other 8% Ow ens-illinois 43% Other 28% Amcor Packaging 17% Coca-Cola Co-Ops 17% Plastipak Packaging 11% Saint Gobain 31% Source: DTCF Estimates and Analyst Reports Constar 11% Graham Packaging 16%

15 Fragmentation in the Packaging Industry Fragmented Industry Slower Consolidation Drivers of Consolidation Opportunities for Consolidation Those at the top of technology curve have carved out a niche in the market New Technologies / Materials Consumer Demand Scale / Breadth Smaller companies better able to serve the quick turnaround needs of many customers Opportunities for bulk purchases of resin and economies of scale Innovation Capital Availability Flexible Packaging Customer and Vendor Consolidation Raw Materials Obtain new technologies form those lacking the means to fully utilize it More than 200 producers of flexible pouches alone

16 So, What s Next?

17 Trend Setters Private Equity-Backed Middle Market Consolidators Large Cap Consolidators Ampac Exopack Bemis Sealed Air Sonoco Private equity to fuel midsize rollups In less frothy times, fundamentals rule Private equity will return to core sectors like packaging Public flexible players to drive further large scale consolidation Strengthen existing product portfolios Product and process differentiation through innovation

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