Greif, Inc. (US), a manufacturer of industrial packaging products and services has completed its previously announced acquisition of Caraustar Industries (US), an integrated manufacturer of 100% recycled paperboard and paperboard products.
The acquisition was announced in December 2018, and the deal was valued at a USD 1.8 billion all-cash acquisition, including other financial terms and conditions. Going forward, Caraustar's financial results will be reported within Greif's paper packaging and services segment.
Lakshmi Narayanan - Associate Vice President : Chemicals & Materials Research, at MarketsandMarkets™, shares his Point of View as mentioned below:
The market for industrial packaging is projected to grow from USD 54.94 Billion in 2016 to reach USD 93.28 Billion by 2026, at a CAGR of 5.4%. The use of paper packaging is gaining importance in the industrial packaging segment as it is 100% reusable, recyclable, biodegradable, and environment-friendly. The increasing use in industries such as chemical and healthcare is spurring the growth of paper packaging.
Note: e: estimated; p: projected
Source: MarketsandMarkets™ Analysis
Impact of Acquisition
Grief operates through three business verticals – rigid, paper, and flexible packaging. Over the past 3 years, the company has been striving to improve the sales volume of its rigid and flexible packaging businesses whereas, its paper packaging segment has shown consistent growth owing to greater demand for eco-friendly packaging. There are several government organizations imposing strict regulations on packaging wastage, which is directly influencing the use of paper packaging. The acquisition of Caraustar is expected to strengthen Greif’s leadership in the industrial packaging market and significantly drive its margins, free cash flow, and profitability. Moreover, it will increase Greif's sales from the US. The company is optimistic about achieving operational execution and boost its strong and diverse product portfolio. Grief is looking forward to achieve at least USD 45 million in cost synergies and performance enhancement in the next 3 years.
According to Pete Watson, Greif’s President and CEO,”I am pleased that we have completed the acquisition of Caraustar Industries and welcome our new colleagues to the Greif team. The addition of Caraustar bolsters our leadership position and enhances our existing portfolio of packaging solutions. We look forward to delivering on the opportunities that the addition of Caraustar provides for our team, our customers, and our shareholders.”
Impact on Top Competitors
Caraustar is a well-established market leader in the production of uncoated recycled paper board and coated recycle paper board. The company had been supplying recycled paper fiber to Grief along with other long-tenured domestic blue-chip customer base, which post-acquisition, is integrated into Grief. The acquisition will make Grief one of the largest integrated paper packaging and recycled paper fiber material supplier in the US market.
Grief’s acquisition of Caraustar is by far the largest acquisition made by the company. This will result in a combined revenue of over USD 5 billion. The acquisition’s major target is the US market; however, the global demand for paper packaging is mostly driven by Asia-Pacific owing to increasing online shopping in the region. Therefore, it will be interesting to see what strategy Grief adopts for expansion to other regions.