Mondi’s ambitions to become a European packaging heavyweight took a small, under-the-radar step last week.
The SA company, which traces its roots to the late 1960s as a paper packaging mill in Durban, struck an agreement on a proposed €600m-plus acquisition of Schumacher Packaging’s West European assets. This move is not merely about dominating the market; it is a step in reshaping the future of sustainable packaging in the era of environmental, social and governance investing and booming e-commerce.
If the immediate reaction of the stock market is any indication, shareholders are giving this move a thumbs up. The stock rose as much as 5% shortly after the announcement, paring this year’s losses. The reaction is not surprising given the strategic fit of the acquisition. Schumacher Packaging’s operations will boost Mondi’s capacity in the high demand corrugated and solid packaging areas. The expected cost synergies of €22m over the next three years are compelling factors for investors.
Yes, the deal is far too small to advance Mondi’s ambitions to become a packaging behemoth in Europe, where it branched out in the mid-2000s after being hived off from Anglo American. Still, it is step in the right direction, coming months after Mondi walked away from buying DS Smith, a R120bn deal that would have created a powerhouse with increased exposure to structural trends in sustainable packaging.
The acquisition of Schumacher Packaging, a German-based family-owned business, will expand Mondi’s corrugated footprint in the region, adding fibre-based products aimed at the e-commerce and fast-moving consumer goods sectors. It includes seven corrugated converting plants, two solid board mills and ground solid board converting plants, boosting Mondi’s capacity by more than 1-billion square metres.
These plants — which complement Mondi’s existing network of corrugated facilities across Central and Eastern Europe — are described by Mondi as “high quality assets with a skilled workforce, strong customer base and a culture closely aligned with our own”.
“This acquisition significantly increases our corrugated converting capacity, extends our reach across Western Europe, and offers strong downstream integration opportunities, while broadening our customer offering with a complementary fibre-based product range,” CEO Andrew King said.
Expanding into Germany gives Mondi a substantial presence in Europe’s largest packaging market and its biggest economy. It is a laudable strategic play to meet the growing demand for eco-friendly packaging at a time when regulators, customers and investors are demanding capitalism to demonstrate commitment to fight climate change.
That said, the valuation of the deal is generous for Schumacher Packaging reflecting both the market conditions and strategic logic of the acquisition. Mondi is paying €634m, implying earnings before interest, tax, depreciation and amortisation (ebitda) multiple of about 10 times, based on Schumacher Packaging’s adjusted ebitda, or core profit, of $66m in 2023. This multiple is above recent transactions in the packaging sector.
The recent tie-up of Smurfit Kappa and WestRock was valued at an ebidta multiple of just more than six times and so too was the merger between International Paper and DS Smith.
So, Mondi cannot afford to sit on its laurels. The packaging industry is fiercely competitive and the integration of Schumacher Packaging’s assets will require careful execution to guarantee the promised synergies. While the market reaction is encouraging, the real work is just beginning.
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