Packaging sector should expect slow growth in 2011

By Dan Hockensmith | PLASTICS NEWS STAFF

CHICAGO (Nov. 11, 2 p.m. ET) — Having survived the economic recession, North American packaging companies should not expect major growth in 2011, two industry watchers said at the recent Pack Expo trade show in Chicago.

In an interview Nov. 1 at the show, Parmesh Bhaskaran, a director in the Chicago office of consultancy and turnaround firm AlixPartners LLP, and Dan Frich, a director in the company’s Detroit office, laid out their vision of the next 6 to 12 months in the marketplace.

Both agreed that talk among industry executives on the floor of Chicago’s McCormick Place of 2-3 percent growth for packaging in 2011 seems reasonable and that Asia and Europe will continue to be somewhat stronger marketplaces.

“It appears that there’s not going to be a big hockey-stick profile going forward,” cautioned Frich. “[Companies] are still going to have to stay focused on their cost structures [and] doing the right business deals. When they’re doing acquisitions, they have to make sure they’re doing a lot of up-front homework and due diligence to make sure they’re getting themselves into a good position to make a good deal.”

Bhaskaran agreed that investigating potential acquisitions thoroughly is a good strategy for companies looking to ad capacity in 2011.

“In the past, when company A has gone out and acquired company B, there’s been enough fat in there that they could skim that off quickly and get up to the multiples that they wanted to. But that fat is not so obvious, with everybody operating lean. So companies have to be even more certain that they do due dilligence, otherwise it’s going to be difficult for them to get the synergies that they want,” he said.

Bhaskaran remains bullish on the prospect of Chinese and Indian companies that are flush with cash seeking inroads into the North American market through mergers and acquisitions.

“It’s a good market; it’s a stable market and we will probably see some of those companies actually coming over and working with [North American] partners. They think this is a great growth market,” he said.

“Buying a small company [in North America] opens an opportunity for [Asian firms] to do business with large retailers like Wal-Mart and other companies which are just going to countries like India. It can potentially represent huge business opportunities for them in India to be able to say they are doing business with Wal-Mart in North America when Wal-Mart comes to India.”

Wal-Mart’s first Indian retail store — a joint venture with Bharti Group that operates under the name Best Mart — opened in Amritsar in summer 2009.

On the subject of Wal-Mart Stores Inc. — and its more-year-old packaging scorecard system — the two AlixPartners directors were clear: Packaging-reduction measurements are here to stay, and they actually aid companies in defining and meeting sustainability goals.

“We have a lot of clients who work with Wal-Mart as suppliers. They see a lot of benefits from that relationship, in addition to just pure volume,” Frich said. “One of the things you get from a company like that is [that] you know what the rules are. It’s always black and white. If nothing else, Wal-Mart is very transparent about what they want.”

Both directors said that private equity players and strategic buyers are likely to close some sizable M&A deals before the end of the year, and that as the global economy rebounds, plastic resin prices will follow on an upward track.