Over the years, the packaging industry has evolved into a saturated market where its growth mostly depends on the sectors it caters to – in this case, virtually every sector! Hence, companies operating in the industry have limited opportunities/alternatives to expand and maintain competitiveness. This leads to an increasing number of companies adopting inorganic growth strategies. Mergers & acquisitions (M&As) not only facilitate corporate growth in a shorter timeframe but also aid in leveraging the strengths and resources of the entities involved.
Very recently, in September 2023, Smurfit Kappa and WestRock announced a $11.2 billion merger that is anticipated to close in July 2024. Smurfit Kappa and WestRock, with their respective leadership positions in the Europe and Americas paper & paperboard packaging markets, are expected to form a “truly global company” while also transforming into the largest packaging company globally. The evolution of both companies was discussed in detail in The Dynamics of Mergers & Acquisitions in the Packaging Industry.
Interestingly, in March 2018, U.S.-based International Paper Company (IPC) intended to acquire Smurfit Kappa for approximately $10.4 billion but the bid was rejected by the latter’s management. Fast-forward to March 2024, and IPC entered a bidding war with Mondi plc to acquire UK-based paper packaging producer, DS Smith. A month later, in April 2024, IPC announced the agreement to acquire DS Smith for approximately $7.2 billion and is expected to close by Q4 2024.
The Smurfit-WestRock and IPC-DS Smith deals are similar– both are transatlantic agreements between two strong regional players aiming to create a ‘global packaging company.’ The packaging industry has long operated in geographic silos with companies strengthening their operations in specific regional markets. Hence, these two deals indicate the start of a globalization trend in the packaging industry via inorganic mode. Frost & Sullivan anticipates more multi-billion-dollar deals in the coming years, consolidating in the industry.
Until 2023, WestRock and International Paper Company were the two largest packaging producers globally, from a revenue perspective. Upon completion of their respective integrations, Smurfit-WestRock is expected to become the largest packaging company followed by IPC-DS Smith. This shuffles the competitive landscape of the packaging industry, widening the revenue gap between the combined entities and independently operating producers. Further, the combination of IPC-DS Smith is expected to have a production capacity of nearly 18 Mn MT (13 Mn MT – IPC; 5 Mn MT – DS Smith) second only to Smurfit WestRock’s production capacity of over 23.1 Mn MT (14 Mn MT – WestRock; 9.1 Mn MT – Smurfit Kappa).
Figure (a) organizes the top 15 paperboard & packaging producers based on their 2023 revenues and provides a representative competitive scenario post-deal completions.
Figure (a). Frost & Sullivan
While mergers & acquisitions are commonplace in the paper packaging market, deals like these accelerate the consolidation of the industry. M&As will certainly continue to provide lucrative growth opportunities for paper and packaging producers over the coming years; however, it remains to be seen whether the consolidation efforts will remain focused on the transatlantic passage or spread to Asia Pacific too.
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