PFFC - January 2008 - (Page 35) MERGERS & ACQUISITIONS Table I. Middle-market transactions have sustained a high level of M&A activity in the packaging industry. But when will the market pick up for the big money? By Bill Hornell, Mesirow Financial Acquirer Target The Blackstone Catalent Pharma Group Solutions (formerly a div. of Cardinal Health) Apollo Management TPG Berry Plastics Inc. Altivity Packaging (formerly Smurfit Stone’s Consumer Packaging Div.) Enterprise Value/ Last 12 Months EBITDA Multiple Transaction Value ($bn) 10.7x $3.3 9.4x $2.3 A s many industry participants have observed, the packaging industry has been reshaped over the past two years by numerous private equity-backed merger and acquisition transactions. What may not be as evident is that these private equity buyers have paid some of the highest multiples of earnings among acquirers of packaging companies. Some of the more notable private equity-backed transactions of the past two years are highlighted in Table I. The prices paid in the transactions highlighted in this table are significantly higher than the median multiple of 7.0x EBITDA (earnings before interest, taxes, depreciation, and amortization) for all announced packaging merger and acquisition transactions in 2006 and 2007. In addition, private equity groups (and their portfolio companies) accounted for 49% of all North American packaging merger and acquisition transactions in 2006 and 2007. This high level of private equity activity was primarily a result of two forces. One was the significant increase in equity funds raised by private equity groups. Over the past three years, private equity groups have been able to access tremendous pools of institutional capital held by pension funds, endowments, and insurance companies. These institutional pools of capital have grown dramatically as the result of robust capital market performances from 2003 through 2006, as well as by continued high levels of contribution into public and private pensions during the same time period. Figure 1 demonstrates the significant increase in private equity capital raised over the past several years. The second force driving private equity activity was the increased use of leverage in structuring acquisitions. The same liquidity forces affecting the availability of private equity capital also were affecting the debt markets. Institutional lenders such as banks, insurance companies, hedge funds, and mezzanine funds were awash in capital. These lenders were looking aggressively to team up with private equity groups to finance large transactions. Figure 2 demonstrates the increased use of debt in structuring private equity acquisitions. The net result was the strong growth seen in private equity activity and the commensurate increase in valuations. The packaging industry is particularly attractive to private equity firms because of the industry’s relatively consistent earnings, modest public company valuations (see the going private transaction of Georgia-Pacific), and numerous exit options. Of particular note was the breathtaking speed in which TPG was able to acquire both Altivity Packaging LLC and 8.0x $1.0 Figure 1. ������������������ ������������ ������������������ ���� ������������ ���� ���� ���� ���� ���� ���� ��� ���� �� ��� ��� ���� ��� ���� ��� ���� ���� ���� ����������� ����������� ���� ���� ���� ���� ���� ���� ���� ����� ���� ����� ��� ��������������� �� ���� ��������������� Figure 2. ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ��������������������� ��������������������� ���� ���� ���� ���� ���� ���� ���� ���� ��������� ��������� ���� ���� ���� ���� ���������������������������������������� ���� �������������������������������������������������� ���� ���� ���� ���� �������������������������� ���������������������������������������� �������������������������������������������������� �������������������������� WWW.PFFC-ONLINE.COM �������������������� ����������� JANUARY 2008 | 35 http://WWW.PFFC-ONLINE.COM
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