„Welcome to our first Industry Series, giving you a birds-eye view on the market for plastics. Our first series will focus on the flexible packaging industry. Other segments such as plastic compounds, rigid packaging, or a sustainability section will follow. We expect the flexible packaging market to grow at a stable 4.5% CAGR, which will especially be nurtured by the increased demands in the F&B delivery and medical sector. Especially in Q1 2021, we have experienced an increased deal volume and recovery in profitability among the peer group, causing a surge in valuation multiples.“
Wolfgang Regele,
Managing Partner
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General Plastic Market Overview
Global Market for Plastics
in USD b 2021-2028
Plastics Demand by Industry
Europe in % and million tonnes 2019
- The global industry for plastics is expected to increase at a CAGR of 3.4% between 2021 and 2028. This is argued because of the growing popularity of plastics in automotive applications allowing weight reduction and less fuel consumption.
- The European market for plastics amounts up to approximately 50.7m tonnes in 2019. Sectors like Packaging, Building, and Construction as well as Automotive, contribute to ~70% of the market.
- Plastic packaging is subdivided into two different groups – rigid and flexible packaging. Currently, we are experiencing the growing popularity of flexible packaging in the market because of its lower costs alongside the value chain and easier recyclability.
Sources: Grandviewresearch (2021), Plasticseurope (2020), Eurostat (2020), Time (2020), Industrialpackaging (2020)
*Note: Others include appliances, mechanical engineering, furniture, medical, etc.
Flexible Packaging Insights
Global Market for Flexible Packaging
in USD b 2020-2025
Flexible Packaging Demand by Industry
Europe in % & USD b 2019 2019
- We expect that the market for flexible packaging will grow at a stable CAGR of 4.5%, reaching USD 200 b by 2025. This growth could speed up considering recent publications advocating the substitution of rigid plastic packaging with flexible packaging in Retail and Consumer Products to reduce the overall waste production.
- Secondary sources report that traditional packaging sectors, such as Retail (non-food), Consumer Products and Industrial Applications, took a hit as a result of the COVID-19 pandemic, because of the experienced shutdowns and ongoing plastic deselection. At the same time, the pandemic offered new opportunities in the F&B delivery and medical industry because of the wider flexible packaging demand triggered by the increased focus on hygiene and safety.
Sources: Markets and Markets (2020), Flexible Packaging Association (2019), Packaging Europe (2021), Flexpack Europe (2019)
Observed Trends
As a result of the pandemic, consumers are nowadays more willing to adopt new technologies across their lifecycle. Therefore, we expect developments in the “smart packaging” sector which allows for an RFID-tracked and improved supply chain. Furthermore, we expect changes in the B2C communication as QR codes on packaging will become more popular, reshaping the way brands interact with their consumers.
Digital Printing allows for a reduction of turnaround time because it eliminates the need of creating the packaging design two months upfront. Additionally, is permits the printing of multiple SKUs* within one run, which is beneficial for small business owners printing lower quantities. Besides, digital printing also impacts the developments in the supply chain for packaging because it requires less upfront planning due to the on-demand availability of the printed packaging design.
Whilst argued as the more sustainable option when compared to rigid plastic packaging, flexible packaging oftentimes lacks the needed recyclability and may, in some cases, require millennia to degrade in landfills. Therefore, emphasis is set on mono-polymer solutions, such as mono- or bi-oriented PE films, which can more easily be incorporated into the recycling process.
The M&A activity in the flexible packaging sector is compounding as companies are expanding their production capabilities in specialty and custom packaging solutions. Moreover, when looking at the buyer activity in Q1 2021, we can conclude that more than 50% of transactions were triggered by private equity activity, primarily aiming for add-ons to their established portfolios.
Sources: Packaging Europe (2021), Flexpackmag (2021), Deloitte (2020), Sazun Research
*SKUs – Stock Keeping Units
Valuation Trends and Developments – Flexible Packaging
EV/EBITDA(Next 12 Months)
- The peer group consists of 10 stock-listed companies in the flexible plastic packaging industry. For small and mid-sized businesses 20-30% markdowns in valuations can be expected.
- EV/SALES increased steadily within the past two years. According to the chart, we can retrieve that after the initial hit of the pandemic in Q1 2020, multiples have recovered well around the median of 1.5x. Moreover, Q1 2021 highlights a peak up to 1.75x, which we reason according to the increased volume of transactions in the period. This leads to an expected valuation of approximately 1.6x EV/SALES for the next 12 months.
- EV/EBITDA is expected to proceed at 9.2x within the next 12 months, considering the recovered profitability margins among the peers in the industry.
Source: Sazun Equity Research, Flexible Plastics Packaging Peer (2021)
Key Performance Indicators
Source: Sazun Equity Research, Flexible Plastics Packaging Peer (2021)
Selected Transactions (YTD) – Plastic Packaging
Want to know more?
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If you would like to learn more about the valuations and deals of your industry, the transaction mentioned above, or generally our way of working, we would certainly be happy to demonstrate our m&a PLUS® principle in a confidential meeting.
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With passion for M&A,
Your SAZUN Team
