Canadian FPP deals in 2010 shaped by restructuring and divesting
TORONTO, April 4 /CNW/ - The majority of Canadian and US deal-making in
the forestry sector in 2010 involved pulp and paper companies in or
coming out of bankruptcy protection and further consolidation is
expected in 2011, according to PwC's annual global forest, paper and
packaging deals report Branching Out.
In 2010, North American deal numbers rose 47% to 66 deals worth US$3.2
billion from 45 deals worth US$1 billion in 2009. However, this is a
far cry from the US$17 billion per annum worth of deals that were
transacted in North America in 2006 and 2007, and the US$30 billion
seen in 2005. In 2010, there were 15 Canadian deals worth US$1.8
billion, more than half of the value of all North American
North America's largest deal in 2010 was when Canadian-owned
AbitibiBowater divested US$940 million of non-core land and assets to
an undisclosed buyer before emerging from creditor protection.
Financially troubled Grant Forest Products was sold for US$400 million
to Georgia Pacific and Eacom Timber Corporation bought the non-core
forest product business from Domtar for US$78 million.
"On a positive note, deal activity in North America revived after a
virtual collapse the previous year," says Frédéric Bouchard, national
transaction forest, paper and packaging leader, PwC. "However, distress
lay behind many of the 2010 deals as many Canadian and US pulp and
paper producers had to seek bankruptcy protection in recent years
amidst declining demand."
Companies that have not been in bankruptcy proceedings have been busy
rationalizing their operations with closures, smaller divestments and
repositioning. With companies becoming more certain about the economic
outlook, there will likely be a wave of deals as more companies
consolidate. Domtar's sale of its wood products business to Eacom
Timber in 2010 is a case in point.
Globally, there were 385 deals struck in 2010, up 4.6% from 2009, but
total value fell to US$12.7 billion in 2010 from US$18.7 billion in
2009. For the first time since PwC began collecting FPP deal data in
2003, Europe had the largest share of deal value with US$4.6 billion,
or 36%, of the total FPP deal value.
"North American companies are further advanced than their European
counterparts in consolidating, reducing capacity and restructuring in
the face of declining demand for newsprint, printing and writing
grades," says Bouchard. "However, we expect this to begin to change in
2011 with Europe following in North America's footsteps in
consolidating capacity to be in line with market demand."
As predicted in last year's report, market distress continued to affect
many non-integrated pulp and paper companies in mature markets caught
between high input prices and low demand. In contrast, integrated
producers are continuing to emerge out of the downturn with relatively
healthy balance sheets.
Private equity (PE) accounted for 22% of total FPP deal value in 2010
and more than half (56%) of converter deal value. Although 2010 was a
low year in terms of numbers of PE-backed deals—just 56 deals down from
107 last year—some larger transactions ensured the US$1.8 billion low
point in 2009 was bumped up to US$2.8 billion in 2010. This boost was
aided by PE coming up with the biggest deal of 2010 with UK PE firm
Candover Investments' sale of Europe's Ontex to TGP Capital and GS
Deal momentum is returning to the FPP sector and is likely to continue
for 2011 and into 2012. Key themes underpinning this are: consolidation
(long awaited in Europe), security of fibre supply, geographical
diversification into new, growth markets and repositioning of product
and operational portfolios.
Private equity is returning to the sector and is playing a very large
part in downstream packaging and converting.
The Asian fibre deficit, most notably in China, will be a continued
force behind outbound acquisitions of foreign fibre resources by
Chinese and other Asian companies. As the FPP market in China continues
to remain heavily fragmented, both government interaction and market
logic will have a core part to play in this area over the coming
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