As everyone recognises, capital flows to wherever it can earn the highest return. And it is usually the cash-rich and successful companies which grow by acquisition. However, fashions seem to change when it comes to structures and targets. Substrate producers, label converters and equipment manufacturers all have different opportunities and threats when it comes to mergers and acquisitions (M&A).
This article is written by John Penhallow and was published in the issue 2-2017.
The example of Avery Dennison is instructive. Originally the company that first made self-adhesive labelstock also made, printed and sold the labels as well. Towards the end of the 20th century Avery Dennison progressively pulled out of the label converting business to concentrate on its core which was, and is, making labelstock. Several of the converters sold off by Avery Dennison are now successful and expanding independent companies, others are part of major groups.
The company’s history over the past twenty years has been one of acquiring competitors but without any vertical integration either upwards to its suppliers or downwards to label converters. There has been a slight change recently with the company’s venture into RBIS (Retail Branding and Information) in partnership with Target Corporation, as part of this company’s deployment of RFID technology to more than 1,600 stores to help maximize inventory availability and deliver an enhanced guest experience. Avery Dennison now claims to be “the world’s largest UHF RFID partner in the retail industry with more than 800 patents and applications”. But so far this diversification is only a small sideline to its main business.
Two of Avery’s very recent acquisitions, for example, are the Israeli- based labelstock producer Hanita, and Chinese tape manufacturer Yongle Tape. The latter was acquired in February 2017 from the company’s management and from private equity firm ShawKwei & Partners for USD 190 million.
The other giant of the labelstock business is structured very differently. Back in 1976 the Finnish paper producer UPM acquired labelstock producer Raflatac, at a time when paper of all kinds was good business. Thirty years later when it wasn’t, UPM divested itself of several loss-making activities. Raflatac was one of the group’s few businesses still making money, which is no doubt why it is still part of UPM. In 2012 UPM Raflatac completed its acquisition of the labelstock business operations of Gascogne Laminates Switzerland. The Finnish papermaker would dearly have wanted to acquire Mactac in 2010, but this move was blocked by US antitrust legislation at the demand of Avery who feared that combining the market shares of Raflatac and Mactac would give monopoly powers in certain markets, most notably in the USA. By an ironical twist, four years later Avery Dennison was able to acquire Mactac Europe, while Japanese labelstock producer Lintec bought Mactac USA. Last year saw UPM Raflatac acquire selected assets of its South African label stock distributor Labelcote, in Johannisburg. Both Avery and UPM Raflatac are rumoured to be planning further acquisitions later this year. Read the full article “Mergers and acquisitions” that you can download in our shop.