Lincoln’s packaging team shares key themes and market chatter from the floor, along with insights from conversations with investors and operators at PACK EXPO International 2024.

Walking the floor, a clear divide was evident among exhibitors: either leaning into sustainability or de-emphasizing it completely. This was particularly true among plastic processors, where the definition of sustainability is blurred depending on what you and, more specifically, your customers are seeking to achieve. Conversations that focused on sustainability were mostly neutral to moot given recent struggles across the space from a profitability and customer penetration standpoint. What is clear is that those who come from a sustainability-first perspective are making deeper strides and achieving receptivity from customers compared to those viewing sustainability as an alternative across their broader product portfolio.

The past 18 months in the packaging industry can be summed up with the buzzword “de-stocking.” Since the shocks of late 2022 and early 2023, the packaging industry has faced headwinds due to core customer and supply chain dynamics post-COVID. As noted in our June report, de-stocking began to subside by Q2 of this year for most consumer-focused packaging businesses. While there are lasting tail effects across certain pockets within packaging, most companies that we spoke to have seen a return to more normalized volume levels. Preliminary views for 2024 are looking more flat-to-up compared to down in 2023, depending on when interim results begin to come up this year. As companies begin their budgeting process for 2025, many are cautiously optimistic about a return to growth as de-stocking has subsided and new revenue opportunities arise.

The final day of the show coincided with the news that Donald Trump would become the 47^th President of the United States, defeating Vice President Kamala Harris, alongside a Republican majority win in the Senate and potentially in the House. Many domestic manufacturers welcomed the news with enthusiasm, anticipating that additional tariffs started by the first Trump administration would create further opportunities for suppliers to compete with foreign manufacturers. Trump has proposed 60% tariffs on imports from China and up to 20% on goods from other countries. However, some expressed caution about potential supply chain issues and price pressures for key imported products. Environmental initiatives are expected to take a back seat with the Trump administration, potentially affecting advances in federal regulation like the EPA’s 2023 plastic strategy. Nonetheless, states and CPG companies will likely continue enacting their own policies regarding environmental rules, much like they have over the last several years. Regardless of your view, these are all factors that operators and investors alike will continue to monitor as the new administration begins to take shape.

There was significant chatter on the floor around shifting industry leaders amid recent mega deals in the packaging world, including the merger of WestRock and Smurfit Kappa (now known as Smurfit WestRock) and the forthcoming union of International Paper and DS Smith. While large players aim to globalize their operations and refocus their customer efforts, many smaller middle market businesses are optimistic. They sense opportunity rather than fear in the wake of their ever-growing public peers. The expectation is that while global players will create shareholder value through synergies, footprint optimization and continued focus on profitability, smaller firms will have the chance to take share of underserved customers who may not fit the mold of a multi-billion-dollar global business. There may also be opportunities in certain geographies where facility closures occur or potential spin-offs of non-core assets create unique opportunities for investors looking to build or add to an incumbent platform.

If you spoke to anyone in the M&A world at the show, the consensus was that this year has been rather soft, with many acquirers looking at the same handful of deals throughout the year. While sentiment has vastly improved over 2023, many transactions have either been add-ons or “special” opportunities involving divestitures or value-focused assets. The sale of platforms is still largely down since 2022, but sellers and investors remain optimistic that a number of deals earmarked for 2025 will open the floodgates to more normalized packaging M&A volumes. We believe this will be a gradual trickle rather than a complete step change to start the year and are encouraged by signs that sellers who have been contemplating a sale for some time will view 2025 as their best opportunity to transact than any other time since the de-stocking dynamic began in late 2022 / early 2023. A combination of improved financial performance, lowering interest rates and availability of capital should result in a more favorable M&A environment starting in 2025 and extending into 2026 and beyond.