M&A bundling up companies in local packaging market

M&A bundling up companies in local packaging market, illustration photo

Packaging M&A remains buoyant

In the beginning of 2018, Sojitz Pla-Net Corporation announced they would enter the packaging material manufacturing business in Vietnam through equity participation in Rang Dong Long An Plastic JSC (RLP), a subsidiary of major Vietnamese plastics manufacturer Rang Dong Plastic JSC. Previously, Sojitz Pla-Net had spent around $4-$5 million to scoop up a 20-per-cent stake in RLP.

According to Sojitz Pla-Net, the retail industry in Vietnam has continued to develop, growing to include supermarkets and convenience stores in recent years. This has led the country’s packaging market to grow by 10-15 per cent annually. RLP is poised to capture this new demand, targeting 10 billion yen ($89.62 million) in sales within the next five years. Through the investment, Sojitz Pla-Net intends to further expand the business going forward, using this equity participation as a foothold to capture the packaging material market across the growing countries of Asia.

Another Japanese investor, Oji Holdings Corporation, also bought major shares at United Packaging Joint Venture Co., Ltd. in 2013. Meanwhile, Japan’s Meiwa Pax took over 93 per cent of Saigon Trading and Packaging for $16.5 million in 2014.

South Korean investors are also stepping up their game in Vietnam’s packaging market. In January 2018, South Korean asset management company Valuesystem announced its $15.6 million investment in the Vietnamese plastic and packaging producer An Phat Holdings. The investment is the first step in An Phat’s capital arrangement plans to reach an ambitious revenue target of $1 billion by 2025.

In another case, South Korea’s Dongwon Systems completed the takeover of Tan Tien Packaging (TTP) for $97.08 million and fully acquired Minh Viet Packaging (MVP) for $21 million. Dongwon Systems is now leveraging the cost competitiveness of TTP and MVP to further expand into the Vietnamese and regional market.

Thailand’s SCG is the most eager investor in Vietnam’s packaging and packaging paper industries. In 2015, SCG Packaging expanded its flexible packaging business by acquiring an 80-per-cent stake in Tin Thanh Packing JSC, one of the top five manufacturers of flexible packaging in Vietnam. SCG Packaging also invested to expand its packaging paper production base at Vina Kraft Paper Co., Ltd. to meet the rapid demand growth for packaging paper in the country. SCG Packaging has holdings in a clutch of other local firms including Alcamax Packaging, Packamex Packaging, AP Packaging, and New Asia Industries.

Why are local companies targeted for takeover?

Vietnam has a population of more than 90 million, most of whom are young. The middle class is also booming with growing consumption demands, making Vietnam an attractive sector for mergers and acquisitions (M&A).

Tran Kiet Toan, Vietnam graphics business unit manager at Rieckermann, which provides a comprehensive portfolio of customised industrial solutions, said that Vietnam is a lucrative market for the packaging industry due to the country’s large population and rapid urbanisation as well as the growth of fast-moving consumer goods (FMCG) in rural areas. Against this backdrop, many foreign investors have secured a stronger presence in Vietnam through greenfield investment or M&As. At the same time, some local companies have become potential targets for foreign investors, as they have been unable grow bigger to capture the huge demand.

Toan illustrated the notable characteristics of the foreign buyers who have been involved in the global supply chain of multinational companies (MNCs) in their home countries. They not only know the rules for working with MNCs, but also receive support to consolidate their business from their MNCs. Thus, foreign investors have a solid foundation to expand their businesses to Vietnam.

Toan also pointed out two weaknesses of domestic companies. Specifically, they are not so quick in catching up with the market trends because they mainly focus on production. Besides, they pay less attention to leadership transfers. This is a crucial factor for development in the Industry 4.0 era, where the second generation of leaders should be nurtured to apply more advanced technology in packaging.

Similarly, Ho Duc Lam, president of the Vietnam Plastics Association, said that the Vietnamese plastic and packaging industry has been under the spotlight of investors from Thailand, South Korea, and Japan in the past few years. The East Asian investors prefer striking up deals with local partners as a shortcut to penetrate the market. “In addition, more European and American investors have strengthened their presence in the domestic markets. Unlike Eastern investors, Western companies prefer to develop their own facilities in Vietnam rather than acquiring local assets,” he added.

According to a report by Stoxplus, a leading financial and business information corporation in Vietnam, plastic packaging is the largest segment in the packaging industry, with a total size of approximately $4.7 billion in 2016. The high demand for plastic packaging is driven by the growth of food and beverage and items in the non-food sector such as beauty and personal care as well as home care.

The flexible packaging market is mostly dominated by the top 14 players, accounting for more than 50 per cent of market share. Local market leaders in flexible packaging are Liksin, Saplastic, and Rang Dong. Meanwhile, foreign flexible packaging companies such as Huhtamaki (Finland), J.S Packaging (South Korea), Tong Yuan (Taiwan), and Ngai Mee (Singapore) are aggressively competing with domestic ones.

According to Nguyen Quang Thuan, CEO of StoxPlus, M&A in the field contains both opportunities and threats, depending on each company and its shareholders. M&A can be a great way to realise investments as part of succession planning, but can also be a threat if the business remains old-fashioned.