Wedoany.com Report on Mar 17th, McKinsey & Company recently released a report suggesting that paper and packaging companies address industry growth challenges, improve returns, and adapt to market changes by conducting multiple small transactions throughout the year, rather than large acquisitions. The report indicates that demand volatility, rising costs, and changes in customer structure are constraining business volume growth, with total shareholder return declining from 10% during 2009-2014 to 1% during 2020-2024.
McKinsey's proposed programmatic M&A strategy involves conducting more than two small to medium-sized transactions within a year, targeting a median deal value of 15% of market capitalization. This strategy is seen as a potential solution to enhance industry performance and competitiveness. The report shows that after transaction volume peaked in 2018, it declined significantly in 2020. Although it has recovered somewhat, it has not reached pre-pandemic levels. In recent years, the average deal size has increased, with large acquisitions often financed through equity, reflecting buyers' willingness to share risks.
Over 80% of surveyed executives expect M&A activity to increase in the coming years, with nearly half willing to pay a 20-25% premium for suitable assets. Companies primarily consider M&A to consolidate core markets and expand scale, with operational execution and rapid integration seen as key success factors. Analyzing approximately 100 companies from 2010-2024, McKinsey found that companies employing programmatic M&A achieved a median total shareholder return of 12.2%, increased annual revenue growth by nearly 4%, and improved gross margins by about 27%.
However, the application of programmatic M&A in the paper and packaging industry is limited, as companies often lack a clear M&A blueprint and the capability to secure deals early. McKinsey recommends defining the integration strategy before deal completion, anchoring the operating model to the transaction rationale, and tracking progress metrics. The report concludes: "Programmatic M&A may not be a universal answer, but for a fragmented and moderately growing paper and packaging industry, it is an effective method to enhance returns and foster innovation."
