Companies across all industries have faced substantial business and operational disruptions during the global pandemic. These disruptions have included everything from mitigating the effects of reduced supply, to managing interruptions to suppliers and logistics, and addressing roadblocks to meeting contractual obligations to customers.
For the packaging industry, these disruptors have been abundant over the past 18+ months, which has caused packaging companies – and the executives that lead them – to examine the major short- and longer-term challenges, and present strategies for combating these business interruptions. However, the recent surge in demand for packaging products has been met with an equal surge in demand for executive talent to lead these types of businesses, and the availability of experienced leaders and advisors at functional and P&L executive levels, as well as board members, diligence advisors, and operating consultants is at a record low due to increased competition for talent.
As many investment banks and other transaction advisors are reporting, growth trends will continue for many industries into next year (e.g., consumer, healthcare, e-commerce), or are expected to strongly rebound (e.g., industrial, automotive, etc). This anticipated growth, coupled with a very strong M&A pipeline, has caused almost unprecedented market demand across nearly all packaging materials and service categories. As a result, business leaders and investors must be very focused, nimble, and aggressive to win the war for the best leaders and advisors.
Recently, the JM Search Packaging Practice spent several days interfacing with numerous executives, investors, and advisors around the packaging ecosystem at the annual Pack Expo held in Las Vegas. With over 23,000 industry experts in attendance, this event presented an opportunity to speak to C-Suite leaders and private equity investors about how they are navigating the current market climate, including solutions they are deploying to address today’s greatest challenges.
Perspectives from the C-Suite
The stresses and strains that are being reported by packaging industry media were echoed by packaging leaders in the Expo conference hallways. From the perspective of C-Suite leaders of packaging companies, two key challenges are front of mind:
- Supply chain disruptions are impairing the ability to meet typical end-user demand. This includes the availability of raw or intermediate materials, price inflation of said materials, shipping delays, and long lead times on equipment and materials. On top of these disruptors, many packaging materials, container, and service categories are experiencing a 10%+ increase in demand – making it an extremely challenging environment to satisfy customer orders.
Talent solution: We are seeing significant demand for procurement, logistics, and supply chain professionals who have proven expertise in refreshing and broadening sources of supply and transportation.
- Labor shortages are causing wage rates to rise. Many executives are reporting increased capex budgets in place to drive automation, particularly in end-of-line converting and packing operations staffed by lower skill level labor. While many manufacturers would normally be adding additional staff to shifts to meet demand, most existing shifts are under-staffed and wage rates are rising while retention rates decline.
Talent solution: Companies are prioritizing two types of roles: Operations professionals who are experienced at deploying process improvement strategies to streamline effectiveness of tight labor; and Engineering talent that can improve preventative maintenance and deploy smart capital to increase manufacturing automation.
Perspectives from Private Equity Investors/M&A Advisors
From the viewpoint of private equity firms and M&A advisors, there are two distinct challenges they are seeing from an investment standpoint:
- There are “too many deals in the market.” Therefore, there is limited time and resources to evaluate, even at a cursory level, the number of platform or add-on assets in the marketplace. This is causing buyers (strategic and financial) to fall back on areas of deep expertise, prior investment experience, and where they have a stable of trusted advisors and “river guides” to ultimately aid in this process.
Talent solution: Many of our middle market clients are creating new positions like Corporate Development and Business Development Roles to bring the evaluation of add-on opportunities “in house” at the platform level. Traditionally, this role exists only at the fund level, but that paradigm is shifting, particularly where the scale exists to justify the new hire.
- A tidal wave of new potential investors are pursuing the packaging sector, despite the relatively high deal multiples and plentiful investment capital. Strong cash flows, steady growth, consumer demand tailwinds, comparatively low barriers to entry, and opportunities to consolidate fragmented segments are drawing multiple, well-capitalized new investors into the space. To venture into “white space” in this environment is more challenging than ever.
Talent solution: Operating Partners and Independent Board Directors are two well established strategic roles that are being leveraged to bring more horsepower to bear that might otherwise exist in the full-time executive leadership ranks. Competition for this talent, and restrictions due to conflict of interest, are creating supply shortages of professionals who might advise as many as 4-5 separate businesses. Investors are turning to executive search experts, like JM Search, to gain access to deep networks of these trusted and proven advisors, most of whom are former CEOs.
Perspectives from JM Search’s Packaging Practice
In the executive recruiting business, we have a unique vantage point of market trends that are driving increased demand for specific talent in the market. Recently, we’ve seen the following trends influence talent strategy models across the packaging industry:
- Sustainability. There is a premium placed on businesses that manufacture or convert “sustainable, recyclable, and renewable” materials, particularly in single use and consumer-facing markets. CPG brands and retailers have made clear commitments to meet this consumer demand, and that is influencing U.S. investment dollars. “Sustainability plays” exist in nearly every sector – be it through raw material sourcing, waste reduction, or in carbon footprint reduction.
Talent solution: Many top corporations are creating or significantly upgrading Chief Sustainability Officer, in many cases reporting directly to the office of the CEO. Where real dollars back up this rhetoric, our clients are actively seeking these professionals as full-time or part-time additions to their platforms or investment staff.
- E-Commerce. The trend of direct-to-consumer channels is driving a large number of transactions and new entrants into protective packaging materials and packaging services. New capital is flowing rapidly into containerboard capacity, shrink wrap, and cushioning materials. While foam and films still have a significant foothold, there is increased clamor for recycled containerboard and paper-based protective solutions.
Talent solution: This booming e-commerce market is driving a need for new C-Suite leaders with deep Packaging Industry expertise and proven experience leading high-growth organizations. With talent pipelines continuing to remain extremely tight, many companies are leveraging the networks of executive search firms to gain access to CEOs, COOs, CCOs and CXOs who have backgrounds in these market segments and within the private small cap and middle market. At JM Search, we have found that industrial and protective packaging market segments –particularly in fiber-based materials – have become highly consolidated and are very “mature” categories. Therefore many experienced leaders have left these markets to pursue employment in more dynamic segments and we are focused on actively connecting clients with these roles.
So, what do these perspectives mean for business leaders across the packaging ecosystem? We offer the following key takeaways:
- During current market volatility, the packaging materials, converting, and services sectors are some of the highest performing industry segments in the market.
- Experienced packaging industry professionals are in unprecedented demand. Current or prospective stakeholders must have a clear and focused narrative and investment thesis to win the battle for the best talent.
- Prospective employers must be more nimble, responsive, creative, and aggressive to attract leaders that are being pursued by multiple opportunities simultaneously.
- The packaging industry has a strong value proposition to attract world class leaders from other industry sectors who may not be actively considering the packaging industry for a dynamic career path.
Interested in discussing how smart stakeholders are taking advantage of this moment to attract “out of the box” leadership with fresh perspectives and world class business experience? Reach out to me and the JM Search team to guide you through the process.