M&A activity in the global Forest, Paper and Packaging (FPP) industry took a dip in the first quarter of 2016 according to a recently released report (the Report) by Pricewaterhouse Cooper (PwC). PwC put the decrease of deal activity into perspective however with a press release last Wednesday, illustrating that while Q1 2016 was not as active as Q4 2015, 2015 was generally positive for the sector and PwC expects that the encouraging trends will continue this year.
The FPP industry saw an uptick of M&A activity in 2015 from 2014, with 143 deals announced compared to 125 in 2014 and overall deal value being US$31.9 billion as compared to US$9.4 billion. PwC indicates that this improvement is a result of the market stabilizing and major industry players looking to gain a competitive advantage with significant strategic deals. Another factor in the sector’s 2015 numbers appears to be the gradual improvement in the US housing market, with housing starts up 6% in Q4 2015 as compared to 2014.
While 2015 generally told a good story for the FPP industry, volatile prices and demand for commodities continue to affect sector performance. Deals announced in Q1 2016 were down to 22 from 39 in Q4 2015; together with a slide in deal value from US$14.8 billion in Q4 2015 to US$2.5 billion in Q1 2016. Deal value and volume were also down in Q1 2016 as compared to Q1 2015. The main headline out of the Q1 2016 results however was the notable increase in Asia/Pacific M&A deal value. The average deal size for the region clocked in at US$204.3 million in the first quarter of this year as compared to US$87.7 million in Q4 2015. Each of Japan China and Australia have been home to sizeable FPP M&A activity so far this year.
PwC forecasted in its Report that the following trends would continue to influence deal-making in the sector: strength of the US economy, access to Asian markets, security of fibre supply, global trade agreements and the possible impacts on supply from sustainable forest management practices. PwC also highlighted that, predictably, the softwood lumber negotiations between US and Canada has the potential to have a significant impact on the Canadian forestry industry. It appears that industry players in Asia and the cross-border talks between the US and Canada have the potential to play a big role in dictating industry deal activity in the upcoming quarters.
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