Why the Wave in Box Plant M&A?

Transcription

1 Why the Wave in Box Plant M&A? November 3, 2016 Bill Hornell Managing Director

2 Historical Global M&A Total Transaction Value by Year For the Periods Ended December 31, and for the Period Ended October 24, 2016 $ in billions $4,500 $4,000 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $ ¹ Sources: Dealogic, S&P Capital IQ, MergerMarket. 1. As of October 24,

3 Historical S&P 500 Pricing /24/2016 2,500 QE Apple $750B Market Cap 2,151 2,000 1,500 Y2k NASDAQ 5,000 Housing Bubble Citicorp $250B Market Cap 1, ¹ Source: S&P Capital IQ. 1. As of October 24,

4 Historical Global M&A Total Transaction Value by Year and S&P 500 Pricing For the Periods Ended December 31, and for the Period Ended October 24, 2016 $ in billions $5,000 Index Value 2,500 $4,500 $4,000 2,000 $3,500 $3,000 1,500 $2,500 $2,000 1,000 $1,500 $1, $500 $0 Jan Mar May Jul Oct Dec Mar May Jul Sep Dec Feb Apr Jun Sep Nov Jan ¹ Total Transaction Value S&P 500 Index 0 Sources: Dealogic, S&P Capital IQ, MergerMarket. 1. As of October 24,

5 Stock Market Since 1900 S&P Composite Index Log scale, annual 1,000 - Tech boom ( ) Roaring 20s Progressive era ( ) New Deal ( ) Post-War boom Korean War ( ) Stagflation ( ) Vietnam War ( ) Oil shocks (1973 & 1979) Reagan era ( ) End of Cold War (1991) Black Monday (1987) Global financial crisis (2008) World War I ( ) Great Depression ( ) World War II ( ) Major recessions Source: FactSet, NBER, Robert Shiller, J.P. Morgan Asset Management. Data shown in log scale to best illustrate long-term index patterns. Note: Past performance is not indicative of future returns. Chart is for illustrative purposes only. Note: Guide to the Markets U.S. Data are as of June 30,

6 Shanghai Area Over the Past 2+ Decades Illustrates Magnitude of China (and Emerging Asia) Growth Shanghai, China, Pudong District Source: KPCB Internet Trends

7 Global Government Debt at 66% Average Debt / GDP (2015) and Up +9% Annually Over 8 Years vs. +2% GDP Growth¹ for 50 Major Countries Global Debt by Type, Q Q $ trillion, constant 2014 exchange rates $208 Compound annual growth rate (%) Q15 +$70T 41 Household $ Corporate $ Government Financial Q Q Q Total Debt as % of GDP GDP Growth*: Source: McKinsey Global Institute (3/16), IMF. 1. Figures do not sum to total, because of rounding. 2. Q data for advanced economies and China; Q data for other developing countries. 6

8 U.S. 10-Year Treasury Yield is Low by Historical Standards U.S. 10-Year Treasury Yield, Nominal, YTD 10-Year Yield (%) 20% 15% 10% 5% 0% (5%) Nominal Yield (%) Source: Morgan Stanley, Bloomberg, 5/16. Note: Real rates based on USGGT10Y Index on Bloomberg, which measures yield to maturity (pre-tax) on Generic 10-Year USA government inflation-index bonds. 7

9 World Population Growth Rate is Slowing +1.2% vs. +2.0% (1975) Global Population and Y/Y % Growth, E Global Population (B) Y/Y Growth Rate (%) % 8 2.0% 6 1.5% 4 1.0% 2 0.5% 0 0.0% Global Population (B) Y/Y Growth (%) Source: U.N. Population Division Note: Growth Rates based on CAGRs over 5 Year Periods. 8

10 U.S. Annual Bond Issuance For the Periods Ended December 31, and for the Period Ended October 4, 2016 $ in trillions $1.6 $1.4 $1.2 $1.0 $0.8 $0.6 $0.4 $0.2 $ ¹ Source: Thomson Reuters. 1. As of October 4,

11 Historical High Yield Bond Issuance Value For the Periods Ended December 31, $ in billions $1,200 $1,000 $800 $600 $400 $200 $ Source: Bloomberg. 10

12 Global PE Overhang Over Time vs. Capital Raised For the Periods Ended December 31, $ in billions $1,400 $1,200 $1,000 $800 $600 $400 $200 $ Dry Powder Capital Raised Source: Preqin. 11

13 Pension Fund Investment Return by Asset Class Median 10-Year Annualized Return 14.0% 12.0% 12.1% 10.0% Total Fund Return 7.3% 8.0% 8.2% 7.1% 6.0% 5.8% 4.0% 2.0% 0.0% Public Equity Fixed Income Private Equity Real Estate Source: Private Equity Growth Capital Council. Note: As of December 31,

14 Relative Appeal of the Packaging Industry 250% Annual Packaging Industry Revenues Annual U.S. Automotive Sales Housing Starts Per Year 200% 150% Recession Impact: 5% 10% 100% Recession Impact: 40% 50% 50% Recession Impact: 65% 75% 0% Sources: S&P Capital IQ, U.S. Census Bureau, Mesirow Financial. 13

15 Total Global Packaging M&A Deal Volume For the Periods Ended December 31, and for the Period Ended October 26, 2016 $ in billions $40.0 RKT / MWV ~$10.8 billion $35.0 $36 $38 $33 $30.0 $25.0 $20.0 $15.0 $21 $17 $19 $23 $24 $17 $16 $19 $19 $10.0 $5.0 $ ¹ Source: S&P Capital IQ. 1. As of October 26,

16 Notable Packaging M&A in 2016 CLOSED DEAL VALUE EV / EV / DATE ACQUIRER TARGET ($MM) EBITDA REVENUE Pending Berry Plastics Group, Inc. (NYSE:BERY) AEP Industries Inc. (NasdaqGS:AEPI) x 0.7x Aug-16 Stone Canyon Industries, LLC BWAY Corp. 2, Aug-16 RPC Group Plc (LSE:RPC) British Polythene Industries plc x 0.6x Aug-16 Packaging Corporation of America (NYSE:PKG) Tim-Bar Corporation x Jun-16 Ardagh Group S.A. Ball Corporation, Select Metal Can Assets 3, x 1.1x Jun-16 Amcor Limited (ASX:AMC) Alusa S.A x 1.2x Jun-16 Ball Corporation (NYSE:BLL) Rexam PLC 8, x 1.5x Jan-16 SCA Americas, Inc. Wausau Paper Corp. (NYSE:WPP) x 1.5x Low 7.3x 0.6x Median 8.6x 1.2x Mean 9.2x 1.1x High 13.5x 1.5x Sources: Company filings, S&P Capital IQ. Note: Mesirow Financial did not represent any of the acquirers or targets in connection with the transactions noted on this page, and is not currently representing any of the listed acquirers or targets. 15

17 Public Packaging Company Average EBITDA Multiples EV / EBITDA Multiple 14.0x Paper Packaging Plastic Packaging 12.0x 11.5x 10.0x 9.8x 10.2x 10.8x 8.0x 7.4x 9.0x 7.5x 8.0x 7.0x 9.0x 8.8x 8.5x 8.4x 8.9x 6.0x 4.0x 2.0x 0.0x ¹ Source: S&P Capital IQ. Plastic Index Includes: Amcor, Bemis, Berry Plastics Group, Sealed Air, Winpak. Paper Index Includes: Greif, International Paper, Packaging Corporation of America, WestRock. 1. As of Sept 20,

18 North American Industrial Packaging Segment Data International Paper Has Achieved Robust Growth and Margin Expansion Through Strategic Acquisitions and Successful Integrations EBITDA ($B) $3.0 Net Sales Weyco Packaging Acquisition & Integration EBITDA TIN Acquisition & Integration EBITDA % 25% 24% 24% $2.5 Global Recession 19% 18% 20% 19% 22% $2.5 $2.7 $2.7 20% $2.0 15% 15% $2.0 15% $1.5 13% $1.6 9% $1.3 $1.3 10% $1.0 $0.5 $0.3 $0.4 $0.5 $0.8 5% $ % Source: International Paper Investor Roadshow, May 18, Note: IP EBITDA margins based on North American Industrial Packaging operating profit before special items. Excludes the Recycling Business and revenue from trade volumes. 17

19 North American Industrial Packaging Relative EBITDA Margins Key Industry Participants Have Recorded Strong Financial Performance and EBITDA Margins Through Q % Q Q Q % 20.0% 24.1% 21.8% 23.2% TTM 23.1% 22.2% 20.4% 22.6% TTM 21.9% Relative EBITDA Margins and Profitability within the North American Industrial Packaging space continue to remain at attractive levels 19.4% 17.5% 18.3% TTM 18.4% 15.0% 10.0% 5.0% 0.0% International Paper Packaging Corporation of America WestRock International Paper EBITDA margins based on North American Industrial Packaging operating profit before special items. Excludes the Recycling Business and revenue from trade volumes. Packaging Corporation of America and WestRock margin estimates obtained from public filings. TTM Trailing Twelve Months. 18

20 Recent Notable Corrugated Packaging M&A Activity DATE ACQUIRER TARGET Pending DATE ACQUIRER TARGET Mar-16 * Aug-16 Feb-16 * Aug-16 Oct-15 Jul-16 Sep-15 Jul-16 Sep-15 Jul-16 Sep-15 Jun-16 * Jul-15 May-16 Jun-15 Mar-16 = = May-15 Mar-16 Apr-15 Mar-16 Feb-15 LACorr Packaging Sources: S&P Capital IQ, Mesirow Financial. Note: Except as noted with a *, Mesirow Financial did not represent any of the acquirers or targets in connection with the transactions noted on this page, and is not currently representing any of the listed acquirers or targets. 19

21 WestRock Q3 FY16 Adjusted Segment EBITDA including Corporate Bridge¹ $ in millions Productivity benefit of $105 million demonstrates continued momentum optimizing mill and converting systems, leveraging continuous improvement organization and lowering costs through supply chain, procurement and SG&A activities $634 ($20) ($39) ($12) $8 ($32) $105 ($4) ($29) $611 Q3 FY15 Volume Price/Mix Pulp Price/Mix Energy, Materials and Freight Labor, Benefits and Other Inflation Productivity FX Pension Income / Other Q3 FY16 Source: WestRock Q3 FY16 Results Presentation. 1. Q3 FY16 results adjusted for inventory stepped-up in purchase accounting net of related LIFO adjustments of $2.0 million. See Use of Non-GAAP Financial Measures and Reconciliations in the Appendix. 20

22 Average EBITDA Multiples for Packaging M&A Transactions For the Periods Ended December 31, and for the Period Ended September 19, 2016 EV / EBITDA Multiple 10.0x 8.0x 8.1x 8.3x 6.0x 6.9x 5.9x 6.5x 6.9x 7.0x 6.8x 7.4x 7.7x 4.0x 2.0x 0.0x ¹ Sources: S&P Capital IQ, Mesirow Financial. 1. As of September 19,

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