M&A in North America | 73“Over the past 18 months or so, we’ve certainly seen a lot of new entrants into the space. We’re all chasing a lot of the same companies”facility how they like, giving them the options provided by the converters know that they have to acquire to stay relevant and parent company to remove the sometimes-diffcult daily operations competitive, so they are looking to buy smaller companies to grow to focus on aspects of the job where they feel they would be more and to fll in potential gaps in their own expertise and application benefcial to the company as a whole. offerings,’ says Dochstader. ‘Investment groups and private equity ‘When you think about running a business, there are so many frms buy with the intention to expand the portfolio and to make obstacles in the day-to-day operations. You see owners who are future acquisitions in the space. We are seeing fewer and fewer in this business and very passionate about what they do but label converting players with annual sales of 10-50 million USD are distracted by the mundane tasks that are necessary to run a because they are rapidly being acquired either by strategics or by business,’ says Sussman. ‘One of the main pitches for I.D. Images private equity. This is going to create a less fragmented industry is that we can help the owners of these businesses with all with the largest players having huge amounts of market share. those day-to-day tasks and allow them to focus on what they’re We’ve seen this dynamic occur in the fexible packaging and folding passionate about and where they can create value.’ carton sectors and I believe that in another decade or so, the label A company acquired by I.D. Images is not just thrown into the sector will look very similar.’ fold, according to Jeff Fielkow, CEO at I.D. Images. The company As covered earlier, with automation in warehousing becoming considers each of the acquired companies as partners, not looking more prevalent and shipping prices becoming more reasonable, to change the way it operates but to standardize its procedures to the local presence that for decades drove sales of labels is still provide a higher quality product to its customers. important to consider – but not quite as much. ‘Each site is unique and, therefore, it is unlikely that two sites ‘Sales within labels have signifcantly been a strong geographic will be set up the same way. However, it is possible to standardize play supported by strong local manufacturers, but it’s now processes across all facilities in order to ensure that the same becoming more of a national play where the national player, along standards of safety, quality and sustainability are being maintained,’ the customer side of things, are wanting a manufacturer that can says Fielkow. ‘As a result, labels produced at any of our facilities will handle all its volume across multiple locations,’ says Bob Cronin. ‘So meet the high standards we have pledged to deliver. Additionally, that is what brought about many of those early merger strategies.’we can cross-sell the unique portfolio capabilities of each facility Size and capabilities are now larger drivers for new customers to our customers that may not be fully aware of all our service than just being down the street. Because of this, the larger offerings. This will ultimately help optimize capacity utilization.’ converters with extended capabilities and, ultimately, the money The uniqueness of each facility is much more important than it to expand and provide whatever services a customer may need are may seem. And for the most part, it isn’t possible to standardize only going to become more important.machinery across facilities; it may not even be advantageous to do ‘There are less smaller players than there were before and, so as being having a wide range of capabilities and specializations speaking of the smaller businesses, they’re facing the problem of under a company’s umbrella may be more appealing to customers. trying to compete against the capabilities of a company with a ‘This specialization can be a wide range of things. For example, much stronger balance sheet than they may have themselves,’ says it might be a converter that has extreme technical prowess in Cronin.multi-web extended text/extended content applications. Or From a customer point of view, the consolidation has plenty of perhaps it’s a converter that excels at producing highest-defnition benefts. A company that provides particular services across the flm beverage labels for sectors like craft spirits and wines,’ says board, no matter where its customer may be located, is driving Dochstader. ‘Or maybe it’s a label converting company that is really customers to the larger converters with said extended capabilities. good at printing extremely resilient applications for the durables And at I.D. Images, that is its ultimate end goal.and chemicals sectors. Equity groups want the target to be good at ‘Our ambition is to be a one-stop shop for our customers’ something.’ labeling needs,’ says Sussman. ‘We’ll continue to expand our These companies were acquired for a reason. The large converting capacity and capability to meet the needs of the customers we groups and private equity frms aren’t putting in the work to serve. Acquisitions are a key part of our growth strategy to enable acquire companies for fun. These acquisitions are purely strategic, us to fulfll our value proposition.’made to leverage the capabilities of the newly acquired company to As said earlier, the full consolidation of the industry may not enhance the capabilities of the group. occur for another decade or so. It may even take longer. The label sector will, however, continue to be a safe place for investors to For there were no more worlds to conquer place money, and for the time being, the consolidation and M&A Like the packaging industry before it, at some point the activity across the North American will surely continue, at least, for consolidation of the label industry will be complete. It may never the foreseeable future.get to the point where only a handful of companies exist, but a ‘As long as the cost of capital remains attractive, I think you’re large portion of the roughly 2,000 converters that are operating absolutely going to see continued consolidation given all the new now will eventually be acquired. entrants, continued fragmentation within the industry and the Where the industry will be at that point and when it will happen benefts seen by customers with companies that have multiple isn’t exactly written on the wall, but, according to Dochstader, the locations and product offerings,’ says Wynne.pace at which the label industry is changing is a clue to what the future will hold.‘The ethos of the label printing industry is changing rapidly. For more on M&A in the label industry, read Bob Cronin’s The largest multinational converting groups are only getting regular column on the subject at www.labelsandlabeling.com/bigger, acquisition by acquisition. At the same time, the mid-sized contributors/bob-croninJan - Mar 2022