Forest, paper and packaging industry deal values fall by a quarter: PricewaterhouseCoopers



    TORONTO, April 17 /CNW/ - According to a new report by
PricewaterhouseCoopers (PwC), total deal value in the forest, paper and
packaging (FPP) sector fell 23% to US$21.3bn in 2008, down from US$27.6bn in
2007. The report, entitled Forest, Paper and Packaging Deals 2008, says that
continuing financial market uncertainty, economic slowdown and a collapse in
worldwide demand is plunging the sector towards a record M&A low in 2009.
    Total deal value in the first half of 2008 surpassed that of 2007 which
itself had been a high point in recent years. Buoyed by International Paper's
US$6bn purchase of businesses from Weyerhaeuser, first half total deal value
across the sector in 2008 was US$16bn. However, second half total value fell
to just US$5.3bn. The fall in overall FPP deal value takes M&A back to the
underlying level seen in 2005 and, if it continues, puts it on course to rival
or surpass lows last seen in 2003.

    
                          2003     2004      2005      2006    2007     2008

    Total deal value               18.5    21.0(*)     25.7    27.6     21.3
    (US$bn)               11.4    (+63%)    (+13%)    (+23%)   (+7%)   (-23%)
                                    254     295(*)      280     370      349
    Total deal numbers     224    (+13%)    (+16%)     (-5%)  (+32%)    (-6%)

    Average value
     (based on deals
      where value is
      reported)                   132.3   128.0(*)    169.4   134.6    111.0
    (US$ million)         90.0    (+47%)    (-3%)     (+32%)  (-21%)   (-18%)
    (*) 2005 data excludes exceptional US$22bn acquisition of Georgia-Pacific
    (GP) by Koch Industries in the US
    

    "Many companies in the forest, paper and packaging industries are facing
unprecedented tough market conditions," says Bruce McIntyre, leader of the PwC
Canada Forest, Paper and Packaging industry practice. "As 2009 unfolds, many
companies in the sector find themselves on a knife-edge and the industry looks
set to undergo an intense round of painful distress-led transformation and
likely to emerge in two or three years time looking very different from
today."
    As in previous years, pulp and paper production delivered by far the
largest average deal size and, in turn, the largest total deal value. With
US$11.9bn worth of deals, pulp and paper production accounted for 56% of total
FPP deal value. Average pulp and paper production deal value was down 19% to
US$233 million from an average of US$288 million recorded in 2007 and total
deal value was down 10%.
    Behind pulp and paper production, deals in converting (including
distribution, such as packaging and tissue product producers, paper
converters, paper merchants), comprised the second largest segment of deal
value, with a total US$3.8bn of deal value or 18% of all FPP deal value.
Converting's total deal value was 35% down on 2007 levels and average deal
value was down from US$82m million to US$61 million. Even bigger was the fall
in the total value of forestland and forestry deals which fell 45% on 2007
levels to US$3.5bn in 2008. Average forestland and forestry deal size fell 16%
from US$188 million to US$159 million.
    Wood products was the sector where total deal value was most resilient,
edging down just 1% or US$21 million to US$2.1bn in 2008. The 3% rise in wood
product deal volume continues a trend of significant increases in deal
activity in recent years. Deal numbers in this sector are running at twice the
level of two and three years ago, albeit with smaller deal sizes and without
any corresponding rise in total value. Wood products accounted for 34% of all
deals in the sector in 2008 but, with an average deal size of just US$38
million, only 10% of total deal value.
    Pure private equity (PE) players featured in three of the top ten deals
and the PE influence on deal-making in the sector remained very strong in
2008. Excluding forestland and forestry where real estate investment trusts
(REITs) and timber investment management organizations (TIMOs) play a dominant
role, PE played a part in 18% of all deals, accounting for 24% of deal value.
REITs, TIMOs and PE together were involved in 19% of all FPP deals and 34% of
total FPP deal value in 2008. Private equity will continue to play a major
role in the sector with PE players seeking to capitalise on distress
situations. PE is also likely to play an increasing role in the consolidation
of the sector in the growth markets. In China, for example, there has been
increasing involvement of PE players and this looks set to gain momentum
although, thus far, mismatches in valuation have restricted deal activity.
    McIntyre adds, "In summary the deal-making environment is overwhelmed
with many challenges and opportunities. Ultimately, deal-making is driven by
relatively few factors, the most important of which are the existence of
benefit and/or need and the availability of the required finance. With the
industry on course towards significant restructuring, the first of these
exists in abundance. It is the second which will determine the level and pace
of activity in the period ahead."

    
    The global top ten - FPP deals 2008
    -------------------------------------------------------------------------
       Month      Deal       Target          Target     Acquirer   Acquirer
      announced   value                    nationality            nationality
                  US$m
    -------------------------------------------------------------------------
     1 Mar 2008   6,000    Weyerhaeuser Co   United    International  United
                           (containerboard,  States    Paper Co       States
                           packaging and
                           recycling
                           business)
    -------------------------------------------------------------------------
     2 Feb 2008   1,710    iStar Financial   United    Hancock        United
                           Inc (portfolio    States    Timber         States
                           of forestland &             Resource
                           related assets)             Group
    -------------------------------------------------------------------------
     3 Sep 08     1,096    M-real Oyj        Finland   Sappi Ltd       South
                          (graphic paper                              Africa
                           business)
    -------------------------------------------------------------------------
     4 Mar 08       974    Papyrus AB        Sweden    Altor Equity   Sweden
                                                       Partners
    -------------------------------------------------------------------------
     5 Jan 08       851    Southern          United    RockTenn Co    United
                           Container Corp    States                   States
    -------------------------------------------------------------------------
     6 Aug 08       783    Plum Creek        United    Campbell       United
                           Timber Co Inc     States    Group LLC      States
                          (Timberlands)
    -------------------------------------------------------------------------
     7 Jun 08       621    Norske Skog       South     Morgan          South
                           Korea Co Ltd      Korea     Stanley         Korea
                                                       Private
                                                       Equity Asia;
                                                       Shinhan
                                                       Private
                                                       Equity Inc
    -------------------------------------------------------------------------
     8 May 08       493    Weyerhaeuser Co   Australia Rank Group        New
                          (Australian timber           Investments   Zealand
                           manufacturing and           Ltd
                           distribution
                           operations)
    -------------------------------------------------------------------------
     9 Apr 08       485    MeadWestvaco Corp United    Kapstone       United
                          (North Charles     States    Paper &        States
                           Kraft Division              Packaging
                           and related                 Corp
                           assets)
    -------------------------------------------------------------------------
    10 Jun 08       390    Ainsworth Lumber  Canada    Creditors;     Canada
                           Co Ltd                      Tricap
                                                       Partners Ltd;
                                                       HBK Master
                                                       Fund LP;
                                                       Barclays
                                                       Bank plc
    -------------------------------------------------------------------------
    

    Forest, paper and packaging deals is based on published transactions from
the Dealogic 'M&A Global' database, January 2009. Deals are included on an
announced basis, adjusted to include only accepted offers. Deal values are the
consideration value announced or reported including any assumption of debt and
liabilities. Figures relate to actual stake purchased and are not multiplied
up to 100%. The geographical split of the deals refers to the location of the
target company or assets. The analysis relates to the forestry, paper and
paper based packaging sector and therefore excludes related sectors such as
printing and plastic, glass and metal packaging. The sector and subsectors
analyzed include: forestland/forestry (e.g. standing timber, nurseries,
harvesting and logging operators), wood products (e.g. sawn timber, wood-based
building materials), pulp & paper (e.g. pulp, primary paper producers) and
converting (incl. distribution) (e.g. packaging and tissue product producers,
paper converters, paper merchants).
    Copies of the FPP deals review are available to download at
www.pwc.com/fpp. The report is the latest edition of a range of deals
publications from PwC, covering sectors including mining, aerospace & defence,
metals, renewable energy, power and oil and gas. Together the mix of deals
reports provides a comprehensive analysis of M&A activity across industries
worldwide.

    PricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance,
tax and advisory services to build public trust and enhance value for its
clients and their stakeholders. More than 155,000 people in 153 countries
across our network share their thinking, experience and solutions to develop
fresh perspectives and practical advice. In Canada, PricewaterhouseCoopers LLP
(www.pwc.com/ca) and its related entities have more than 5,200 partners and
staff in offices across the country.

    "PricewaterhouseCoopers" refers to PricewaterhouseCoopers LLP, an Ontario
limited liability partnership, or, as the context requires, the
PricewaterhouseCoopers global network or other member firms of the network,
each of which is a separate and independent legal entity.





For further information:

For further information: Carolyn Forest, PricewaterhouseCoopers LLP,
(416) 814-5730, carolyn.forest@ca.pwc.com; Nina Godard, PricewaterhouseCoopers
LLP, (416) 941-8383 x 13520, nina.godard@ca.pwc.com

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