More consolidation likely as DS Smith takeover of SCA changes packing landscape - analyst

By Rory Harrington

- Last updated on GMT

Related tags Ds smith Mergers and acquisitions

More consolidation likely as DS Smith takeover of SCA changes packing landscape - analyst
DS Smith’s €1.7bn (£1.4bn) takeover of SCA Packaging is a game changer both for the company and the European packaging sector, said an industry analyst as the fallout from this week’s deal continues to be scrutinised.

The acquisition, unveiled on 17 January, will enable the UK-based outfit to secure significant cost savings and will likely lead to more takeovers as the corrugated sector becomes more consolidated, said Nicholas Mockett, packaging M&A specialist at London-based investment bank, Moorgate Capital.

DS Smith revealed that the transaction would see it almost double the number of it plants to 223 after reaching agreement with Sweden-based SCA for its business which posted 2010 sales of almost €2.5bn and an operating profit of €117m.

Company chief Miles Roberts said the move would make it a significant Pan-European player, with annual cost efficiencies likely to reach €75m by 2015.

Mockett backed this assessment as he said: “This is a game changing acquisition for DS Smith and the packaging industry. The deal drivers here will be the merger synergies in the Western European markets in purchasing, production, and sales, where the businesses overlap.”

Whereas Roberts highlighted the extra reach the takeover would give it in Northern Europe, the packaging analyst said it would also yield benefits in the less crowded Central and Eastern Europe (CEE) arena.

Lock in competitive advantage

Mockett added that the firm could further boost its position if it could replicate its current efficient model on a wider scale.

“DS Smith is arguably one of the best packaging operators in the recycling area, and recycled waste paper is a core raw material in corrugated packaging,​ “ he said. “If it can roll out its sophisticated model to more countries it may lock-in competitive advantage​.”

Experts have noted for some time that the fragmented European corrugated sector was ripe for consolidation.

SCA president and CEO Jan Johansson declared that the main reason for the divestment was it preferred to focus on its hygiene operations rather than remain in the fragmented sector.

“The packaging sector needs to be consolidated in Europe and we are not going to be consolidators”,​ he said.

Mockett added: “Corrugated packaging is recognised as a more cyclical segment and consolidation is desirable and inevitable. Following the Smurfit Kappa deal in 2005, the acquisition of the UK SCA businesses by SAICA in 2008, and DS Smiths own acquisition of Otor in 2010 we should expect to see more mergers and acquisitions in the corrugated packaging industry.”

Related topics Processing & packaging

Related news

Show more

Follow us


View more