The Market for Label Companies       

The market for label companies in Western Europe and North America is consolidating. Every month label companies are sold. A few deals are huge like CCL’s acquisition of Avery Dennison’s Label Converting Business for $500 mio. Most are much smaller, but just as important for the involved parties. One example of the consolidation taking place: In Denmark, 20 years ago we had more than 50 label companies, now there are less than half left. The same scale of consolidation has not yet taken place everywhere, but consolidation is happening. At the same time new label companies start in the emerging markets, so on a global scale the number of label companies is more or less stable.  

Will Baby Boomers flot the small business market ?

The label market consists of thousands of small to medium sized companies most of them run by entrepreneurs. In the mature Western Europe and North American label markets these companies are typically 20-40 years old. Time is catching up on the owners and many of them are forced to think about exit strategies.

With Baby Boomers retiring en masse over the next 15 years, a lot of business owners will be heading for the exit not only in the label business, but in many small to medium sized businesses. There are predictions that this will put a damper on small-business valuations, as the supply of businesses will outweigh demand. Business owners should start planning now to position their business for sale in what could become a crowded and competitive marketplace.

Buyers are out there !

On the demand side, there are buyers out there! We have several companies, who are actively seeking to buy label companies. We have observed different groups of buyers in the market.

A prominent group of buyers are made up of label companies with a strategy to expand often within their enduse markets such as pharmaceuticals, beverage or food. The biggest examples are CCL Label and Multicolor , but there are several others with clear growth by acquisition strategies. Some do it within their own geographical areas or as part of a strategy to expand to other parts of the world. A particular group of label company buyers are looking for cheap deals, when ‘colleagues’ run into difficulties and are forced to sell.

Another group of buyers consists of companies from other industries, who want to expand into the label market. They can come from other packaging industries such as Fuji Seal’s acquisition of Pago and Constantia Flexibles acquisition of Spear Group. They can also come from traditional printing, where the market is shrinking and profit levels are lower than in the label market.

Corporate buyers and private equity groups in particular are sitting on record amounts of cash and looking to put it to use through strategic acquisitions and investments.

The 4 largest acquisitions ever in the label industry are unfolding right now. Two acquisitions made by the leading label companies CCL Label and Multi-Color and two by large companies from industries offering alternative decorating technologies Fuji Seal and Constantia Flexibles:

2011: Multi-Color acquired York Label Group to strengthen their position in the Home and Personal Care, Food, Wine and Beverage markets in North America for a price of $356 million in assumed debt, stock and cash for a turnover of $240 million, 12 plants and 1.200 employees.

2012: Fuji Seal bought all shares in Pago Holding AG in Switzerland to strengthen their position as a global supplier of sleeves, labels, flexible packaging and application machinery for a cost of CHF 121 million for a turnover of CHF 180 million, an EBITDA of 3.2 mio and about 900 employees.  

2013: Constantia Flexibles Group, headquartered in Vienna, Austria, a leading flexible packaging group, has announced the acquisition of Spear Group focused on labels for the beverage industry.  Spear has sales of approximately US$ 195 million with 650 employees located at four facilities in North America, Wales, South Africa and a sales office in Singapore. Spear has also a growing business of  re-sealable products primarily for the food and snack markets. Purchase price has not been disclosed.

2013: CCL Industries has announced the acquisition of the office and consumer products, and designed and engineered solutions businesses of Avery Dennison on a debt free basis for US$500 million cash. The two businesses had combined revenues of approximately US$910 million with an estimated adjusted EBITDA of US$110 million in the calendar year of 2012. This acquisition is the largest in CCL’s history and takes the company’s pro-forma annual revenue above $2 billion for the first time.

Both 2013 transactions require regulatory approval. Traditionally label companies were much, much smaller than most of their customers and suppliers. This is now changing with these acquisitions. The merged companies also achieve global foot prints to meet the demands of global brand owners for global sourcing of all relevant decorating technologies. Resources will be available to invest in technology, people and a global supply chain. However, many acquisitions are not successful. The challenge remains to stay customer focused and flexible while successfully integrating these big label companies.

The Alexander Watson executive Merger & Acquisition forum in Chicago offered lots of interesting learnings for buyers and sellers of  label companies. Here are some of them: 
       
The positive trend since the bottom was reached in 2009 continues with more and more Mergers and Acquisitions happening in the packaging industry. 
        
Multiples of EBITDA (Earnings before Interest Taxes Depreciation and Amortization) is a key measure for quick valuations in the packaging  industry. See my blog from February for more information. For companies with  critical mass, continued growth and a positive outlook EBITDA multiples of 6-6.5 for financial transactions and about 7 for strategic acquisitions are often being paid. 
        
Our experience is that for label companies, who mostly are smaller and do not have the critical mass, typical multiples realized are 3-5, in exceptional cases 6.
 
My recommendation is to take advantage of  the positive trend and start preparing for selling your label company. Even more so, if you experience profitable growth. Do not wait till you are forced to sell. We have many serious buyers looking to acquire label companies around the world…… 

Join me at the Alexander Watson Associates (AWA) M&A Executive Seminar in Chicago April 16. Download the program and application form here.

I will be speaking about 'M&A Opportunities and Pitfalls in the Label Industry'. A growing label market with more than 15,000 companies world-wide offers opportunities for both strategic and financial  investments.

Although growth in the label market has slowed in the mature markets, we  predict above GDP growth in the coming years both in the mature and emerging markets. The label industry has a lot of factors going for it such as the spread of industrialization and retailing in the emerging economies where labels are needed. In North America each person consumes 25 m2 of labels per year. In many emerging markets the consumption is still at only 3-5 m2 of labels per person per year with a huge upside for growth! In the mature markets such as North America and Western Europe continued legislation and QR codes are demanding more and more information on products, which leads to bigger and bigger labels. Intensified fight for consumer attention on the shelves requires more attractive labels. RFID tracking and functional use of labels will increase their use. Digital printing opens up new markets for small runs of customized labels. All these factors will continue to give above GDP growth also in the years to come.  

About half of the worlds converters are now in the emerging markets. Consolidation is happening in the mature markets with much more to come forced by a combination of fierce competition and the fact that many first generation owners are getting closer and closer to have to sort out the unavoidable generation shift. Many new label companies are popping up in the emerging markets. The balance is shifting with many M&A opportunities in both emerging and mature markets.

Label Companies for Sale.com hopes to help facilitating this process.