Packaging: Delivering Stability & High-Growth Opportunities

Key Learnings 

  • Driven by non-discretionary demand and innovation across several markets, the packaging sector offers investors wide-ranging value-creation opportunities. 
  • Key areas for investment include sustainability, pharmaceuticals, food and beverage, e-commerce, and automation. 
  • Packaging is a highly fragmented and global market, providing significant runway for M&A. 

Recession resistant and innovative, packaging is a highly attractive sector that combines both stability and growth. In this article, senior bankers from Harris Williams share key trends putting packaging on investors’ radar and the high-growth areas primed for M&A. 

Resiliency and Innovation Attracting Investors

The packaging sector has proven to be resilient long term and through challenging economic environments, such as the Great Recession and COVID-19 pandemic. As shown below, packaging companies achieved EBITDA growth rates in line with or better than the broader market during these periods, with greater stability and resilience as demonstrated by lower peak-to-trough declines. 

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Source: Cap IQ: Data based on reported EBITDA of public companies. “Peak to trough” was calculated by finding the percentage difference between LTM EBITDA at the peak, and LTM EBITDA at the trough, for each analyzed period. 

Packaging's recession resistance is highly sought-after amid today’s economic uncertainty and is based on its end market diversity and non-discretionary demand. “The packaging sector has exposure across a wide range of attractive, resilient end markets,” says Morrison. "Packaging is ubiquitous and a necessity, which allows packaging providers to better withstand market volatility.” 

These industries also require packaging to perform its intended role, namely attractiveness, functionality, protection, and performance. “In all economic environments, CPGs, brand owners, and product manufacturers require high-quality and effective packaging to stand out on shelves, engage customers, and deliver on performance,” notes Perkins. Lastly, the packaging industry is agnostic to shifts in consumer preferences between more and less expensive products. Whether the product itself is branded or private label, it still requires packaging. 

There has also always been innovation in the packaging sector that drives continued pursuit of new packaging applications. This innovation generates growth areas for packaging providers, including sustainability, temperature control, product protection, barrier effectiveness, and others. 

“Packaging is the link between customers and products,” says Ripperger. “It helps differentiate companies and product quality, and competitive CPGs and brands will keep pushing the envelope with packaging manufacturers,” he continues. 

With this high level of innovation, there are more opportunities for companies to differentiate and grow across a diverse set of end markets and use cases. Walter adds: “Packaging providers can add value to customers by differentiating themselves on product characteristics and ingenuity.” 

Due to packaging's resiliency and innovation, a wealth of investable opportunities is being created across several key areas. 

Attractive Packaging Opportunities

Sustainability 

ESG is a key focus area across packaging providers and their customers, with companies hiring ESG consultants and publicly announcing commitments to sustainability initiatives. This shift has led sustainability to be one of the most powerful drivers of packaging design, rivalling cost and performance for certain applications. 

“Companies are rapidly developing more sustainable packaging types, recyclable and compostable packaging materials, and new processes to manufacture sustainable products,” explains Morrison. “All these innovations are establishing new high-growth areas and value-creation opportunities for investors.” 

The key product innovations for investors to look for include recycled materials, recyclable and compostable products, improved performance properties, and closed-loop systems with packaging that is collected and used again. Outside of packaging itself, investors should also seek eco-friendly companies with sustainable approaches toward energy, waste and scrap management, and recycling. 

Pharmaceuticals 

Due to an aging population, new drug development, greater drug complexity, an increase in vaccinations, and more subscription-free medicines, the global pharmaceutical packaging market is expected to continue its steep growth trajectory. 

“These trends are driving an increasing need for packaging companies that can meet growing demand, while providing quality and innovative shipping products that can better protect higher value specialty drugs,” says Hepper. 

Temperature-controlled shipping options are a great example, which are becoming more important to ensure the molecular stability and preservation of complex drugs and vaccines. Another growing segment is track-and-trace labels and interactive packaging to ensure that patients are receiving their medication, their drugs are safe and intact, and they’re using them as directed. 

Hepper adds: “Packaging companies able to differentiate themselves through product quality and performance can realize attractive margins, especially with competition that’s limited to businesses with required regulatory approvals.” 

E-Commerce 

As consumers purchase more products through a larger number of digital channels, packaging will continue to evolve and create high-value opportunities across the industry. 

These opportunities include packaging for the products themselves, as well as packaging that facilitates product transportation and protection during shipping, such as stretch wrap, pallets, and more. The enormous diversity of shapes and sizes of e-commerce goods also presents packaging providers with the ability to add greater efficiency and stability to the supply chain. 

For instance, multiple innovative formats are coming to market that accommodate CPG preferences and help products stand out online. “There’s a rising need for protective, resilient, and high-quality packaging that can withstand shipping demands, including temperature extremes, changes in pressure, and various degrees of impact,” says Walter. 

Food & Beverage 

With consumers increasingly turning to more convenient, portable, ready-to-eat food options, there is a growing demand for packaged products as well as accelerated e-commerce penetration in grocery and food delivery. 

“Several expanding areas exist to serve this need, including functional printed rollstock, thermoformed trays, and sustainable options using recyclable and eco-friendly materials,” explains Walter. 

Flexible packaging, for instance, is particularly well suited to serve many end markets, particularly food and beverage: “It's a lightweight format that has excellent food preservation qualities thanks to better barrier properties and the ability to be resealed. It also takes up less space than alternative formats, reducing shipping costs and carbon emissions, which provides additional sustainability benefits,” Walter adds. 

Automation 

Beyond packaging itself, an even broader range of investment opportunities exists in packaging automation. “With increasing labor costs and a limited availability of labor, packaging automation has the potential to improve ROI and alleviate labor shortages,” says Ripperger. 

Packaging machinery achieves higher output levels at lower scrap rates, helping to increase both efficiency and quality. In addition, automated packaging lines can be integrated, from filling machinery and pick-and-place systems to primary, secondary, and tertiary packaging machinery. 

“ESG also drives growth, as sustainable materials have different product characteristics and require specialized machinery, driving demand for new, dedicated equipment,” adds Perkins. 

Primed to Deliver Value

Beyond the trends creating opportunities in packaging, there’s also high fragmentation across all packaging formats, providing significant potential for consolidation. 

M&A continues to be an effective growth lever through accretive tuck-ins and attractive adjacencies, with successful roll-up strategies proven by larger platforms. Through M&A, platforms can add scale, capabilities, new markets, broader geographic footprints, and synergy realization to generate long-term value. 

To learn more, please contact our senior bankers. 

Industrials Group 

From the internet of things to temperature-stable packaging, engineered components, specialized chemicals, and building products, the industrials industry offers a wealth of opportunities. Our Industrials Group serves as trusted advisors to investors and company leaders worldwide with deep experience across our core sectors: building products and construction materials, chemicals and specialty materials, engineered equipment, components, and products, industrial technology, and packaging. 

Healthcare & Life Sciences Group 

Driven by strong demographic tailwinds, the healthcare industry combines fast-paced innovation with steadily growing demand, offering investors a wide array of opportunities. With deep industry knowledge, our Healthcare & Life Sciences Group partners with clients across key sectors such as providers, outsourced provider services, payor & payor services, medical products and devices, healthcare IT, and more. 

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