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• European market following example set by US 20 years ago, but at slower pace
• 109 notable M&A deals in the sector since 2010
• Top five players only account for 33% of installed containerboard capacity

Europe’s fragmented corrugated packaging industry is expected to enter a period of consolidation prompted by slim margins and firms’ need for a wider geographical presence, according to Rabobank.

Analysts at the specialist food and agribusiness bank have predicted that the number of mergers in the sector is expected to remain at record high levels. Some ten deals have been completed or announced between January and June 2017 – more than three times the number in all of 2011. Next to high activity levels within Europe, the bank expects large European producers will continue looking for opportunities overseas, as demonstrated by DS Smith’s recent agreement to acquire Interstate Resources in the US.

Such consolidation is similar to trends in the US market witnessed during the last two decades. However, a number of factors mean consolidation is not expected to take place as fast in Europe, according to Rabobank.

In its paper, The European corrugated packaging industry – moving towards the US market structure?, the bank highlights the key drivers behind the consolidation of the fragmented European market.

The first of these is increased margin pressure, which is forcing European players to operate more efficiently and seek to increase their market power.

Second, a consolidated customer base means buyers are increasingly looking for pan-European coverage from their suppliers, including packaging companies.

Finally, the location of production plants, which must be near customers, is driving change. Corrugated board sheets are typically economically viable for a distance of up to 400km, but preferably within 200km. This has led to larger players acquiring smaller competitors in more convenient locations.

Natasha Valeeva, report author and supply chains analyst at Rabobank, said: “The European market has witnessed some notable M&A deals in recent years, but we expect more in the future as firms respond to headwinds in what is still a very fragmented sector.

“We don’t, however, expect this consolidation to happen quite as quickly as in the US. The rate of M&A is being slowed by factors such as high valuations and family-owned companies not ready to sell yet.”

The scope is there for further consolidation. The five largest producers, Smurfit Kappa, DS Smith, Saica, Mondi and Prinzhorn Holding have about a third of the market share in Europe. It is far more fragmented among its competitors: roughly 46% of the market is supplied by containerboard producers who have less than 2% of the market.

Tjard Westbroek, global sector head of supply chains at Rabobank, said: “As market trends, such as environmental footprint, sustainability, access to recycled material and food safety make it more difficult for smaller players to cope with growing investment necessities, it is inevitable that further market consolidation will happen.

“We’re now seeing companies seeking to balance containerboard production and its conversion, while driving vertical integration at the same time.

“Over the coming years we expect smaller producers to be acquired by the bigger players, especially if they’re based across key customer locations on the continent. We think the key aim for larger companies is to be strategic in their locations, making sure they’re able to benefit from economies of scale and avoid unnecessary transportation costs.”

Rabobank serves the global packaging industry providing a full suite of financial services to over 60 leading companies in the sector, and banks more than half of the listed names among them.
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