RaboResearch: The future of corrugated packaging amid rapid market consolidation

23 Jul 2024 --- The European corrugated paper industry is undergoing a period of active mergers and acquisitions (M&A), driven by large-scale consolidations that are rippling throughout the global economy. Making new bolt-on and medium-sized acquisitions could now often be a more important business strategy than increasing capacity, according to a new RaboResearch report.

The research division’s findings also show that paper companies are likely to begin looking to expand into more fragmented areas of Europe and other overseas territories and focus on  higher-value products and customers. 

The recent mega-merger between Smurfit Kappa and WestRock, which officially entered the New York and London stock exchanges several weeks ago, has triggered a period of significant M&A activity. 

The report deems the tie-up a “gamechanger” for the industry as other large-scale attempted and successful mergers followed, with International Paper (IP) acquiring DS Smith for £5.8 billion (US$7.2 billion), and Suzano then unsuccessfully bidding US$15 billion for IP.

These mega deals usually result in the newly formed companies, in this case, Smurfit WestRock, potentially selling off or closing assets and establishing new business entities. RaboResearch says that while the outcome remains to be seen, it “undoubtedly promises to reshape the market.” 

Since the last RaboResearch report in 2016, there have been 219 notable M&A deals in the corrugated packaging space.Entering fragmented regions
A central tactic many companies in Europe are now taking is to pursue M&A activities in regions with less consolidated markets, the report notes. 

While areas like the UK are dominated by a few companies, DS Smith, Smurfit Kappa (now Smurfit WestRock) and Saica, these companies have been expanding their networks in the past several years into regions like the Iberian Peninsula, France and Italy.

Some companies have also been actively looking to take advantage of the Eastern European market. Last year, DS Smith acquired Serbian packager Bosis doo, and Coveris recently acquired Polish packager Hadepol Flexo, marking its fourth acquisition in Central and Eastern Europe.

RaboResearch also notes that Italy has become “a hot market” as changes in the country have made it attractive for larger companies to begin taking over businesses at the expense of traditional family-owned firms. 

For instance, last year Mondi acquired the Duino mill near Trieste, Italy, from the Burgo Group. Mondi planned to invest around €200 million (US$217 million) in restructuring the facility. 

Global expansions 
As the market moves beyond the Smurfit WestRock merger, the researchers say they expect that other large players will move into bigger geographic regions, often with access to virgin fiber as a common driver. 

Prior to the WestRock merger, Smurfit Kappa had been making smaller bolt-on acquisitions of converting assets throughout the US, Mexico, Colombia, Peru, Argentina and Brazil. 

Other examples include DS Smith first moving into the US in 2017, Klingele Paper & Packaging Group expanding to Brazil in 2020 and Billerud into the US in 2021. 

Similarly, businesses outside of Europe are looking to achieve mergers within the continent, with IP’s acquisition of DS Smith being the most recent and significant example. Smaller companies like Japan-based Rengo Co and KPP Group Holdings have also made consolidations in Europe through their subsidiaries. 

The report notes that the trend toward notable M&A deals is expected to continue over the next decade as companies adapt to market changes “in a still very fragmented industry.” 

“Increased competitive pressure, regulatory challenges and changes in the customer base create a stronger basis for further market consolidation. Larger players, while maintaining their focus on strategic European geographies, are likely to explore opportunities to enter or expand in more fragmented regions and they will continue to consider the US a high-margin market, where regulatory and energy pressures are less severe.”

By Louis Gore-Langton