How do you explain the strong investor interest in the packaging market for beauty and luxury products?
There are two main reasons. Firstly, a combination of market growth in the luxury segment and attractive earnings – EBITDA margins are typically in the region of 15% of sales. This is attracting many private equity funds. The private equity industry is becoming more demanding about market fundamentals. Twenty years ago, investment funds focused primarily on the quality of the management team, however following the crisis of 2008, they have strengthened their investment criteria: a growing number now focus exclusively on companies positioned in growth markets, with real differentiation in capabilities, and with an international presence. The packaging industry for beauty products ticks all the boxes: specific know-how, a good pricing capability, significant barriers to entry when delivering to a global a customer base, etc. The international exposure also limits the risks of regional economic recessions.
What is the second reason?
The packaging market is highly fragmented and in the process of consolidating due to growing customer pressure. The funds are extremely fond of buy & build strategies – doubling or tripling revenues over a four to five year cycle, through external growth. Smaller companies are typically receiving slightly lower valuations, which makes external growth a pathway to significant increases in value creation.
Are transaction amounts progressing?
We are on multiples of 8 to 10x EBITDA, however this differs depending on size, growth levels and business positioning. Funds are competing with industrial players on acquisitions, which
is placing more pressure on prices. Investors have the prospect of realizing attractive development operations quickly.
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