Packaging Profit Margins Packaging Industry Trading Multiples

[Pages:6]Piper Jaffray Middle Market Mergers & Acquisitions

The Wrap: April 2006 (Issue 38)

The Wrap is a monthly newsletter published by the Middle Market Mergers & Acquisitions Group at Piper Jaffray. Topics related to the current M&A packaging industry are highlighted in each month's issue.

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SPOTLIGHT ON PACKAGING VALUATIONS

This month Piper Jaffray examines packaging company profit margins and valuations. Our analysis includes more than 360 worldwide packaging M&A transactions that took place in 2005 and 47 deals through the first quarter of 2006. We also analyzed data from 49 public firms traded on the major global stock exchanges over ten years.

Over the course of ten years, the 49 public firms examined generated a revenue CAGR of 9%. In total, these firms added nearly $160 billion in aggregate revenue, reaching $278.5 billion as of LTM 3/31/06. It comes as no surprise however, that profit margins have been declining over the last eight years. Packaging companies continue to cite price competition, rising raw material prices, and energy prices as the largest impediments to restoring profit margins. In response, packaging firms have continued to place intense focus on costs and right-sizing their balance sheet. European markets however, remain a bright spot in terms of margins for many firms. The strong Euro has been a benefit for the firms with production capabilities on the continent, conversely, it has hurt firms exporting to Europe.

Packaging Profit Margins

16.0% 14.0% 12.0% 10.0%

8.0% 6.0% 4.0% 2.0% 0.0%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 1Q06 EBIT Margin EBITDA Margin Source: Capital IQ, Company Reports

Packaging Industry Trading Multiples

14.0x

12.0x

At the end of the first quarter the median EBIT margin for the 49 public firms was 6.7%, which compares unfavorably to the ten year average of the median EBIT margin of 8.2%. This is also significantly down from a peak EBIT margin of 9.9% in 1998. Meanwhile, in nominal dollars, EBIT has grown by a CAGR of 5.4% or an aggregate $7.7 billion to $18.9 billion in total EBIT.

As we discussed in the last issue of The Wrap, the packaging sector has been, and continues to be very active as it relates to M&A. As a mature industry, taking market share is key to growth, and one of the best ways to take share is through strategic acquisitions. The other way is through innovation, often expensive and unreliable, especially in the current environment of high raw material costs and significant price competition.

Notwithstanding, valuations are above their ten year averages. The ten year average median EV/EBITDA multiple for the 49 public firms tracked is 7.3x. This compares to the median multiple of 8.8x for the same firms at March 31, 2006, a 21% premium to the historical average. What is most interesting however, is that the median M&A transaction multiple of 6.4x for 2005 was 5% below the ten year historical average median M&A multiple of 6.8x, versus almost 10% premium to the 7.4x median M&A multiple at the end of the first quarter 2006.

10.0x

8.0x

6.0x

4.0x

2.0x

0.0x

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 1Q06

EV/EBIT

EV/EBITDA

Source: Capital IQ, Company Reports

Valuations of Announced Packaging Industry Transactions

14.0x 12.0x 10.0x

8.0x 6.0x 4.0x 2.0x

To discuss this topic or other packaging industry issues in further detail, please contact any member of the packaging team listed below.

0.0x

1996

1997

1998

1999 2000 2001 2002 2003 2004 2005 1Q06

EV/EBIT

EV/EBITDA

Source: Securities Data Corporation and Piper Jaffray Estimates

PACKAGING INDUSTRY M&A CONTACTS (packaging)

Jeff Rosenkranz MD & Head of Middle Market M&A 312 920-2133 jeff.a.rosenkranz@

M. Shane McDaniel Senior Associate 312 920-3271 michael.s.mcdaniel@

Adam Kroll Associate 312 920-2149 adam.b.kroll@

Since 1895. Member SIPC and NYSE. Securities products and services are offered in the United Kingdom through Piper Jaffray Ltd., which is authorized and regulated by the Financial Services Authority.

? 2005 Piper Jaffray & Co., 800 Nicollet Mall, Minneapolis, Minnesota 55402-7020

Piper Jaffray Middle Market Mergers & Acquisitions

The Wrap: April 2006 (Issue 38)

ACQUIRER FOCUS: APTARGROUP INC.

In each issue Piper Jaffray highlights an active acquirer in the packaging industry.

2005 Sales: $1.4 billion 2005 EBIT: $155 million 2005 EBITDA: $254 million

EBIT Margin:

11.1%

EBITDA Margin:

18.1%

EBITDA-CapEx Margin: 10.9%

Page 2

Total Net Debt:

$129.0 million

Total Net Debt/EBITDA: 5.1x

Profile

Key Statistics

Headquarters: Ownership: Description:

Crystal Lake, Illinois

Public (NYSE: ATR)

AptarGroup is a leading global supplier of a broad range of dispensing systems for the personal care, fragrance/cosmetic, pharmaceutical, household and food/beverage markets. The Company conducts its business principally through three operating segments: Pumps, Dispensing Closures and Aerosol Valves. AptarGroup has manufacturing facilities located throughout the world including North America, Europe, Asia and South America.

Acquisition History

Date Target Name

Jan-06 Oct-05 Feb-05 Feb-99

CCL Dispensing Systems, LLC

Mnfr dispensing closures MBF Developpement SAS

Mnfr decorative packaging components

EP Spray System SA Mnfr aerosol valves

Emson Research Inc. Mnfr perfume pumps

Target Sales ($ million) $22

$52

$15

$85

Sales by Segment

End Markets

Aerosol Valves 15%

Dispensing Clos ures 25%

Other 5%

Food/Beverage/Other 9%

Household 7%

Personal Care 34%

Pharm aceutical 22%

Pum ps 55%

Fragrance/Cos m etic 28%

Source: Public Filings

Historical Sales and EBITDA

($ in millions)

$1,600 $1,400 $1,200 $1,000

$800 $600 $400 $200

$0

2001

2002

2003

$300

$250

$200

$150

$100

$50

$0

2004

2005

Source: Public Filings

Sales

EBITDA

Two-Year Stock Price Graph

600

$60

StockPrice

500

$50

Market Capitalization:

$1.9 billion

Enterprise Value:

$2.1 billion

400

$40

Volume(000s)

EV/Revenue:

1.5x

300

$30

EV/EBIT:

13.5x

EV/EBITDA:

8.3x

200

$20

EV/EBITDA - CapEx:

14.0x

100

$10

0 4/1/2004

7/1/2004

9/30/2004

12/30/2004

3/31/2005 Date

6/30/2005

9/29/2005

12/29/2005

$0 3/30/2006

Since 1895. Member SIPC and NYSE. Securities products and services are offered in the United Kingdom through Piper Jaffray Ltd., which is authorized and regulated by the Financial Services Authority.

? 2005 Piper Jaffray & Co., 800 Nicollet Mall, Minneapolis, Minnesota 55402-7020

Piper Jaffray Middle Market Mergers & Acquisitions

The Wrap: April 2006 (Issue 38)

Page 3

SELECT MARCH TRANSACTIONS

In each issue Piper Jaffray highlights recent transactions in the packaging industry.

Tecnocap SpA has acquired Penn-Wheeling Closure, a manufacturer of customized stock metal closures serving the food & beverage, pharmaceutical and health and beauty markets.

Chesapeake Corporation has sold its plastic packaging operation, Boxmore Plastics Limited, to its existing management. Boxmore Plastics is located in Northern Ireland.

Wind Point Partners has acquired York Label Holdings, a manufacturer of high-end pressure sensitive labels. Piper Jaffray served as financial advisor to York Label Holdings and Huron Capital Partners.

Industrial Label Corp. was acquired by Wind Point Partners. Industrial Label Corp. manufacturers custom and pressure sensitive labels for the food & beverage industries.

Genpak LP has acquired Carthage Cup, a privatelyowned plastic extruder and thermoformer located in Texas.

Wisconsin-based Midland Container was acquired by Private Equity Capital Corp. Midland Container designs and manufactures corrugated packaging and displays.

Viapack, an investment Company formed by Robert Isen and Red Diamond Capital, has acquired Georgia-based P&O Packaging, a manufacturer of custom monolayer and co-extruded polyethylene films for laminating, converting and other specialty packaging applications.

AEP Industries has sold its Belgium subsidiary, AEP Belgium SA to an undisclosed European Investor. AEP Industries manufactures flexible packaging products.

Oricon Packaging has acquired Oriental Containers, manufacturer of metal and plastic packaging. Packaging products includes caps and closures, tubes, cans and metal sheets.

Automatic Business Products Company ("ABP") was acquired by TimeMed Labeling Systems. ABP's label products include mailing, merchandising, pricing and thermal labels.

Industrial Packaging Supplies has acquired All-Star Packaging, manufacturer of packaging machinery and materials. Packaging products include poly bags, boxes, bubble wrap, foam, film and dispensers.

Mid South Packaging has acquired two plants from Menasha Corp. The Cullman, Alabama plant manufactures sheet and protective packaging and the Olive Branch, Mississippi plant manufactures point-ofpurchase displays.

Date Announced Acquirer Name

3/27/2006 Tecnocap SpA 3/24/2006 Management 3/17/2006 Wind Point Partner 3/17/2006 Wind Point Partner 3/13/2006 Genpak LP 3/10/2006 Private Equity Capital

3/9/2006 Mid South Packaging 3/9/2006 Viapack 3/7/2006 Undisclosed European Investor 3/7/2006 Oricon Packaging Pvt Ltd 3/6/2006 TimeMed Labeling Systems Inc 3/3/2006 Industrial Packaging Supplies

Target Name

Penn-Wheeling Closure Inc Boxmore Plastics Ltd. York Label Holdings Industrial Label Corp. Carthage Cup LP Midland Container Corp. Menasha Corp.'s Two Plants P&O Packaging AEP Belgium SA Oriental Containers Ltd-Pkg Automatic Bus Prod Co Inc All-Star Packaging Inc

Target Business Description

Mnfr metal closures Mnfr plastic packaging prod Mnfr pressure sensitive labels Mnfr pressure sensitive labels Mnfr plastic foam prod Mnfr corrugated packaging products Mnfr flexible packaging prod Manufactures films Mnfr plastic film, prod Mnfr alum crowns, cans Mnfr containers Mnfr packaging prod

Target Location

N. America

Enterprise Value Enterprise Value/ ($ mil) Sales EBIT EBITDA

np

np

np

np

Europe

np

np

np

np

N. America

np

np

np

np

N. America

np

np

np

np

N. America

np

np

np

np

N. America

np

np

np

np

N. America

np

np

np

np

N. America

np

np

np

np

Europe

np

np

np

np

Asia

np

np

np

np

N. America

np

np

np

np

N. America

np

np

np

np

Since 1895. Member SIPC and NYSE. Securities products and services are offered in the United Kingdom through Piper Jaffray Ltd., which is authorized and regulated by the Financial Services Authority.

? 2005 Piper Jaffray & Co., 800 Nicollet Mall, Minneapolis, Minnesota 55402-7020

Piper Jaffray Middle Market Mergers & Acquisitions

The Wrap: April 2006 (Issue 38)

Page 3

SELECT FEBRUARY TRANSACTIONS

In each issue Piper Jaffray highlights recent transactions in the packaging industry.

Toyo Seikan Kaisha has acquired Malausia Packaging, a manufacturer of flexible packaging products.

Alcan's North American plastic bottle assets were acquired by Ball Corp. The assets produce barrier polypropylene and polyethylene terephthalate plastic bottles for the food industry. The purchase price was $180 million.

Canadian-based Roman Corp has been acquired by Forest Resources. Roman Corp manufactures paperboard and folding carton packaging for the food & beverage industry.

Sonoco Products has acquired the packaging assets and business of Wycon Corp. Wycon is the flexible packaging subsidiary of privately-held Seville Flex Pack Corp. The assets purchased include a 135,000 square foot facility in Waco, Texas and two 12-color rotogravure presses.

Ukranian-based JSC Gostomel Glass Factory was acquired by Vetropack Holding. JSC Gostomel Glass Factory manufactures glass bottles for soft drinks, alcoholic beverages, food jars and medicine ware.

Thilmany, a portfolio company of Kohlberg & Company, has acquired Packaging Dynamics. Packaging Dynamics manufactures flexible packaging and operates under two business segments: Food Packaging and Specialty Laminations. The transaction value of $268 million represents a revenue and EBITDA multiple of 0.8x and 8.7x, respectively.

AEP Industries has acquired the business and operating assets of Mercury Plastics' Bowling Green, Kentucky filmproducing plant. The transaction value was $11.6 million.

Siligan Holdings has acquired Amcor's German-based White Cap closures business. The transaction was valued at $274 million.

Airspray was acquired by Rexam for $174 million or 13.3x reported EBITDA. Airpray manufactures dispensers that turn liquids into foam at the point of delivery. Markets served include personal care and household products.

MTS Medical Technologies has acquired BAF Printers, a manufacturer of computer labels and paper bags for the retail pharmacy, hospital, and veterinary markets. The transaction was for $1.3 million.

Ball Corp. has acquired U.S. Can's U.S and Argentine plastic operations. The transaction had an enterprise value of $767 million and an EBITDA multiple of 8.7x.

Boise Cascade has acquired the assets of Central Texas Corrugated, a corrugated sheet manufacturer operating a single plant in Waco, Texas.

Date Announced Acquirer Name

2/28/2006 Toyo Seikan Kaisha Ltd 2/27/2006 Ball Corp 2/27/2006 Forest Resources 2/27/2006 Sonoco Products Co 2/24/2006 Vetropack Holding SA 2/24/2006 Thilmany LLC 2/23/2006 AEP Industries Inc 2/22/2006 Silgan Holdings 2/22/2006 Rexam PLC 2/22/2006 MTS Medical Technologies Ltd 2/14/2006 Ball Corp

2/2/2006 Boise Cascade Holdings LLC

Target Name

Malausia Pkg Ind Bhd Alcan Inc-Select Plastic Bottle Assets Roman Corp Ltd-Strathcona Wycon Corp JSC Gostomel Glass Factory Packaging Dynamics Corp Mercury Plastics-Bowling Green Amcor's European White Cap Closures business Airspray NV BAF Printers Ltd US Can Corp-US and Argentina Operations Central Texas Corrugated LP

Target Business Description

Mnfr flexible pkg prod Mnfr plastic bottles Mnfr paperboard pkg prod Mnfr converted paperboard Mnfr glass prod Mnfr packaging equip Mnfr plastic packaging prod Mnfr caps and closures Mnfr foam pumps Mnfr,whl computer labels Mnfr metal cans Mnfr corrugated sheet prod

Target Location

Asia

Enterprise

Value

Enterprise Value/

($ mil) Sales EBIT EBITDA

np

np

np

np

N. America

180

np

np

np

N. America

np

np

np

np

N. America

np

np

np

np

Europe

np

np

np

np

N. America

268 0.8x 11.5x 8.7x

N. America

12

np

np

np

Europe

274 0.9x

np

np

Europe

174 3.2x 16.2x 13.3x

Europe

1 0.5x

np

np

N. America

767 0.9x 14.4x 8.7x

N. America

np

np

np

np

Since 1895. Member SIPC and NYSE. Securities products and services are offered in the United Kingdom through Piper Jaffray Ltd., which is authorized and regulated by the Financial Services Authority.

? 2005 Piper Jaffray & Co., 800 Nicollet Mall, Minneapolis, Minnesota 55402-7020

Piper Jaffray Middle Market Mergers & Acquisitions

The Wrap: April 2006 (Issue 38)

RECENT PACKAGING TRANSACTIONS BY PIPER JAFFRAY

Page 4

On March 17, 2006, Wind Point Partners, a private equity firm based in Chicago, Illinois, acquired York Label Holdings from Huron Capital Partners, a Detroit, Michigan based private equity firm. York Label is a premier provider of high-end pressuresensitive labels to an attractive national customer base in a variety of end markets, including consumer products, health and beauty aids, pharmaceutical/medical, food and beverage, CD/DVD, financial services and direct mail. York's products are characterized by high degrees of customization, complexity, and innovation, including high-impact graphics, vivid colors, and unique constructions and functionality. York maintains unmatched product development capabilities, relying on the Company's technical expertise to develop products which precisely match customers' specifications. The Company's products are manufactured in one of the largest pressuresensitive label manufacturing facilities in North America.

March 2006

has sold

to

Piper Jaffray & Co. initiated the above transaction, assisted in the negotiations and served as exclusive financial advisor to York Label Holdings and Huron Capital Partners.

Since 1895. Member SIPC and NYSE. Securities products and services are offered in the United Kingdom through Piper Jaffray Ltd., which is authorized and regulated by the Financial Services Authority.

? 2005 Piper Jaffray & Co., 800 Nicollet Mall, Minneapolis, Minnesota 55402-7020

Piper Jaffray Middle Market Mergers & Acquisitions

The Wrap: April 2006 (Issue 38)

PIPER JAFFRAY M&A INSIGHTS

Packaging-focused Reports The following reports focus on important M&A issues in the packaging industry:

? Mergers and Acquisitions in the Packaging Industry?2004 Year in Review and 2005 Outlook

? Corrugated Containers: A Mergers and Acquisitions Review ? Mergers and Acquisitions in the Packaging Industry?2003 Year

in Review and 2004 Outlook ? Mergers and Acquisitions Value Drivers for Companies in the

Packaging Industry ? Packaging Industry Valuation Considerations: Capital

Expenditures ? Caps and Closures: A Mergers and Acquisitions Review ? Valuations in the Packaging Industry ? Mergers and Acquisitions in the Packaging Industry?2002 Year

in Review ? Packaging Industry Public Company Acquirers?Earnings Per

Share Accretion/Dilution Considerations ? Plastics Industry

No password is required--visit our Web site ma.

Page 4

Past Issues of The Wrap Recent topics examined and acquirers highlighted in The Wrap include:

Issue

37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22

Date Spotlight

Acquirer

Feb 06 Jan 06 Dec 05 Nov 05 Oct 05 Sept 05 Aug 05 Jul 05 Jun 05 May 05 Apr 05 Mar 05 Feb 05 Jan 05 Dec 04 Nov 04

Strategic and Financial Buyers Label Converter Market Cross Border Packaging M&A YTD Q3 M&A Activity Flexible Packaging Market Market Share Leaders Public Debt Financing SG&A Expenses European & U.S. Valuations Largest Packaging Companies Raw Materials Packaging Valuations Cash Conversion Cycle 2004 Review/2005 Outlook Profitability Ratios Leverage Analysis

Cascades WS Packaging Rexam Constantia Packaging Sun Capital Partners Appleton Papers AEA Investors Amcor Graham Packaging Winpak Sealed Air Huhtamaki Mondi Packaging Alcan/Pechiney Sonoco Products Kirtland Capital

Information contained in this publication is based on data obtained from sources we deem to be reliable, however, it is not guaranteed as to accuracy and does not purport to be complete. Nothing contained in this publication is intended to be a recommendation of a specific security or company nor is any of the information contained herein intended to constitute an analysis of any company or security reasonably sufficient to form the basis for any investment decision.

Notice to customers in the Europe: This material is for the use of intended recipients only and only for distribution to professional and institutional investors, i.e. persons who are authorized persons or exempted persons within the meaning of the Financial Services and markets Act 2000 of the United Kingdom, or persons who have been categorized by Piper Jaffray Ltd. As intermediate customers under the rules of the Financial Services Authority.

Additional information is available upon request.

Since 1895. Member SIPC and NYSE. Securities products and services are offered in the United Kingdom through Piper Jaffray Ltd., which is authorized and regulated by the Financial Services Authority.

? 2005 Piper Jaffray & Co., 800 Nicollet Mall, Minneapolis, Minnesota 55402-7020

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