91 days, 47 deals, US$3.4 billion1

M&A deal activity continues to be strong in Q2 2015 highlighted by KapStone’s acquisition of Victory Packaging and an increase in deals in the Asia/Pacific region.

PwC is pleased to share with you our quarterly analysis of mergers and acquisitions (M&A) activity in the global forest, paper and packaging (“FPP”) industry for the second quarter (Q2) of 2015.

Overview

Global M&A activity in the FPP sector in Q2 2015 saw an increase in deal volume but a decrease in total deal value relative to the first quarter (Q1) of 2015. A total of 47 M&A deals were announced during Q2 2015 with a total value of US$3.4 billion and an average (median) deal size of approximately US$23.0 million. This compares to 31 deals in Q1 with a total value of US$12.3 billion and an average (median) deal size of approximately US$8.2 million.

In comparison to the second quarter of 2014, there was an increase in Q2 2015 in terms of total deal volume and value. The graphs to the right provide a summary of deal activity by quarter for 2012, 2013, 2014 and 2015.

Notable deals

The top five largest announced deals in Q2 2015 (based on deal value) accounted for US$2.1 billion or 62% of total deal value. This is a significant decrease from Q1 2015 where the top five largest transactions accounted for US$12.0 billion or 98% of  total deal value. In addition, four of top five largest announced deals in Q2 2015 were focused in the Asia/Pacific and the EUMEA regions, whereas the top five largest deals in Q4 2014 were more focused in the Americas region. Furthermore, a number of the top five deals in Q2 2015 involved a mix of strategic buyers and financial buyers.

The table below presents the information with respect to the top five deals announced in Q2 2015.

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Click here to view the table.

Deal activity heats up in the Asia/Pacific region

Q2 2015 saw an increase in deal volume and value in the Asia/ Pacific region, with 29 announced deals accounting for US$1.5 billion in deal value. This is a significant increase from Q1 2015 which saw 13 announced deals for a total deal value of US$0.9 billion. Notable deals in the Asia/Pacific region include the following transactions:

  • Weifang Beida Jade Bird Huaguang Sci-Tech announced that it will acquire Chinese wood-based composites company Kangxin New Material Science & Technology Stock Company for US$556.1 million;
  • IMM Rose Gold Private Equity Fund II, a South Korea-based private equity firm, signed a definitive agreement to acquire a 58.85% stake in Tailim Packaging Industrial for US$255.1 million;
  • Lee & Man Paper Manufacturing was involved in two transactions during Q2 2015 in which its Chairman and CEO agreed to acquire additional stakes in the company from Nippon Paper (4.28% stake) and Dyna Wave (6.8% stake) for US$103.1 and US$163.9 million, respectively; and
  • Guangdong Mega Investment Group closed a deal to acquire a 25.44% stake in Yunnan Jinggu Forestry, a China-based timber processing business for US$102.5 million.

In addition to the 29 announced deals for which value was disclosed, there were an additional 14 deals in the Asia/Pacific region announced in Q2 2015 for which deal value was not disclosed.

We believe that consolidation is likely to continue in the Asia/Pacific region as firms continue to focus on accessing high growth markets.

Geographical Distribution of Deals

The distribution of announced deals in Q2 2015 (based on total deal value) was more geographically focused in the Asia/ Pacific region than was the case in Q1 2015. Below presents the respective information for Q2 2015.

In the Americas, there were ten announced deals in the quarter with a total deal value of US$1.1 billion, however, the majority of the deal value related to KapStone’s acquisition of Victory Packaging, which was acquired for $640 million at an adjusted EBITDA multiple of 6.1x. Victory Packaging is a national distributor of all types of packaging and employs about 1,500 people.

In the EUMEA region, there were eight deals with a total deal value of US$0.8 billion. Both the deal volume and total deal value are higher than in Q1 2015.

There were 29 deals with a total deal value of US$1.5 billion in the Asia/Pacific region. As discussed earlier, the Asia/Pacific region has seen an increase in both deal volume and total deal value in relation to Q1 2015.

Trends and insights

In the upcoming quarters we expect the major trends impacting the sector to continue to influence deal making. These trends include:

  • The strengthening of the U.S. economy
  • Accessing Asian markets
  • Security of fibre supply

Altogether, economic conditions and industry trends are driving opportunities for FPP companies to create shareholder value. We expect deal making to continue in the sector as companies look to gain strength in core markets.

About the data

Deal information was sourced from S&P Capital IQ and includes deals for which buyers or targets fall into specific industry sectors. Certain adjustments have been made to the information to exclude transactions that are not specific to the FPP sector.

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