Playing an essential part in many markets, the packaging sector is often in the spotlight, and given the UK Government’s net zero ambitions, it is no surprise that the question of sustainability has been at the top of the agenda. DEFRA has set ambitions to work towards zero avoidable waste by 2050 and the elimination of all avoidable plastic waste by end of 2042.
What developments can we expect to see in coming years as businesses look to the future? And what is the role of M&A and private equity in spurring new technologies to achieve their potential?
BDO’s recent Packaging Sector Insights report takes a detailed tour of the areas driving sustainability in the packaging sector. Over the past 40 years the industry has seen continuous growth and improving margins, thanks in part to the cost and convenience of plastic. However, plastic is now at the forefront of debates around sustainability and environmental impact. It’s estimated that plastic packaging placed on the market in the UK totals 2.3Mt per year, and accounts for nearly 70% of our plastic waste.1
Looking ahead to the next 20 years, we can expect the landscape to shift as these outputs are no longer accepted by society and consumers. Green regulation, such as the Plastic Packaging Tax, is driving change in corporate behaviour, and we expect further measures to be rolled out in support of green aspirations. The EU’s call for all plastic packaging to be recyclable or reusable by 2030 is another recent example spurring change. Big-name corporates, including Coca-Cola, M&S and McDonald’s have released more audacious sustainability targets, and detailed plans on how they will reach these goals.
But as with most things, issues are not as straightforward as they may initially appear. The environmental costs of producing “more sustainable” materials are often overlooked. Paper-board materials have long been considered more sustainable due to recyclability, with around 70% UK production derived from recycled materials. However, the amount of water required for production far exceeds plastic, along with the potential impact of deforestation to habitats and carbon sinks. There is no simple answer.
Awareness of the impact of packaging materials from cradle to grave – and more importantly, promoting a much longer lifecycle for packaging before it is discarded – is necessary if the goal is sustainability and a circular economy. The structural properties, ease of print and design, and cost of packaging materials means there is a place for all material types and we expect that plastics will still have a place in the future. Emphasis is instead shifting to choosing the right material for the right purpose, weighing sustainable objectives against material properties and cost.
What will the future hold?
Balancing different goals will continue to push businesses to innovate and will lead to a more price-competitive and multi-faceted sector. We’ve seen the rise of a wide range of technologies, from compostable, to dissolvable, and even edible solutions. We have also seen the rise of returnable and refillable packaging.
Private equity and venture capital firms are highly motivated by opportunities to back technologies that promote a circular economy, as noted in our recent Circular Economy report. The backing of an investor can take a business to the next level, and support both development and roll-out. A few examples might help to give a quick insight into the future:
- Sourceful is a business which offers a data-driven platform to help decision-makers design custom sustainable packaging and offset their carbon footprint. Having recently received £15.2 million in Series A funding led by Index Ventures, Sourceful is now looking to international expansion and developing new product categories, including the integration of lifecycle assessments for plastics.
- Polymateria is a developer of biodegradable and compostable plastics through the process of biotransformation. The business received £15 million seed funding from Planet First Partners that will accelerate roll-out of the technology, which ensures true biodegradation for plastic that escapes into the natural environment, leaving behind zero microplastics. This high-profile deal also saw the appointment of Marc Bolland, former Marks & Spencer CEO, who joined the company as Chairman.
- MMC Holding International Ltd (doing business as Magical Mushroom Co) is another business offering biodegradable packaging alternatives that has secured funding this year. The company will use the £3 million in seed funding to implement automation upgrades at their existing packaging plants in the UK and Bulgaria to scale production and lower costs and the pricing structure.
- PPS Equipment is a provider of returnable plastic packaging services that has received several rounds of funding in recent years, most recently from BGF and Frontier Development Capital. The business provides reusable, returnable and recycled transit packaging such as trays, crates, pallets and boxes to the fish and meat processing sector, offering customers cost-effective, environmentally friendly alternatives to single-use packaging. Their returnable transit packaging solutions help to minimise waste and reduce carbon in customers’ operations, as well as drive further efficiencies across their supply chain. CEO David Peggie confirmed that the long-term investment approach of BGF will give the company both time and financial support to pursue market opportunities, including possible future acquisitions.
It isn’t only private equity firms that see a profitable future in sustainable packaging and circular business models. Coveris has recently launched a new business unit “RECover”, which brings together waste sourcing, processing and recycling to close the loop for circular plastic recycling. Having acquired a PE recycler in December, extrusion operations comprise mechanical recycling to recycle and re-use production waste. Other corporates such as Berlin Packaging, ProAmpac and Tricor Braun have all made multiple acquisitions recently to diversify their solutions portfolio. Closer to home, consolidators including MacFarlane Group and Zeus have been making acquisitions in the UK to capture market share across a fragmented landscape.
Which packaging innovations will be leading the way in 2040?
Those that have solid financial backing and strong Board leadership stand a good chance of leading the market in the next couple of decades; those that have diversified to offer a wide range of materials for different needs are also strong contenders. We predict that standardised reporting and measurable sustainability by 2040 will be commonplace. In such dynamic and uncertain times, M&A activity has been an effective way to expand capabilities, capture synergies, combat supply chain pressures and drive value creation across a fragmented market. Based on the inherent attractiveness of the UK packaging sector, we expect the M&A market to remain robust and see continued corporate activity and investor appetite for innovative new sustainable technologies.