As we had long forecast, the higher central banks raise interest rates, the lower the Merger and Acquisition trend… which hit record highs at the height of the COVID War in 2021 when interest rates sank and governments pumped in countless trillions to artificially prop up sinking economies. 

And as we have continued to detail, it is important to understand that M&A activity will continue to slow down as interest rates remain high. But as economic conditions worsen there will be more corporate defaults. This will bring revenues of struggling companies down, making it cheaper for the “Bigs” to buy out those in economic distress. This in turn will continue to shrink the competitive landscape in many business sectors. Here are some of the latest “Big” takeovers.

TWO PACKAGING GIANTS MERGE IN “DEFINING MOMENT”

Smurfit Kappa, an Irish packaging firm operating in 35 countries in Europe and the Americas, is merging with U.S.-based Westrock, a box maker with 58,000 employees and 300 production plants around the world.

Smurfit is Europe’s largest box maker. Westrock is second largest in the U.S.

The new entity, Smurfit Westrock, is valued at roughly $20 billion and will have total revenue of $34 billion a year.

Together, the companies posted a combined profit of $5.5 billion and gross revenue of about $34 billion for the year ended June 30.

The new entity will be the world’s largest packaging company by revenue, the companies said in a joint statement.

Smurfit originated the deal and will give Westrock shareholders one share of the new entity and $5 in cash for each of their Westrock shares, a value of about $43.51 a share.

Smurfit’s current stockholders will own about 50.4 percent of the new company.

Smurfit stockholders were unhappy with the 36-percent premium the company added to Westrock’s 6 September closing price. Most had assumed the premium would be no more than 20 percent, JP Morgan analysts said in a note.  

Smurfit’s share price dropped 10 percent on news of the deal. Westrock’s price rose 7.2 percent.

Nonetheless, the deal marks “a defining moment within the global packaging industry,” according to CEO Tony Smurfit, who will maintain that role in the new entity.

The packaging business soared during the COVID War when locked-down shoppers spent their days buying things online.

Since then, consumers have shifted their shopping from merchandise to experiences and manufacturers have needed fewer boxes. Packaging companies cut prices, sales declined, revenues slumped, and Smurfit has found it difficult to replicate past profits.

To counter the slump, Westrock has focused on shedding low-profit product lines and cutting costs.

Smurfit Westrock will save about $400 million in costs after the first full year of operation, which could boost earnings-per-share by 20 percent, they noted.

Smurfit recently saw box orders increase in Europe, it said, hinting that retailers may finally be clearing out inventory backlogs and ordering new stock ahead of the winter holidays. That may offer a chance to increase prices, the company said.

BILLIONAIRE FAMILY IN EUROPE BUYS CONTROL OF CREATIVE ARTISTS AGENCY 

Artémis S.A., the holding company owned by France’s billionaire Pinault family, will buy a controlling interest in Creative Artists Agency (CAA), a Los Angeles talent and brand management firm with about 1,800 employees and $1.7 billion in annual sales.

Artémis’s $40-billion portfolio holds interests in fashion, wine, luxury, art, tourism, publishing, sports, food, and technology. It owns a majority share of Kering, the luxury conglomerate that includes fashion labels Alexander McQueen, Balenciaga, Bottega Veneta, Creed, Gucci, Puma, and Yves Saint Laurent.

Creative Artists advertises itself as “positioned at the nexus of talent, content, brands, technology, sports, and live events” and representing “thousands of the world’s leading actors, directors, writers, producers, musical artists, comedians, authors, athletes, coaches, broadcasters, teams, leagues, chefs, designers, fashion talent, consumer brands, and more.”

Among artists CAA represents are filmmaker Steven Spielberg and actors Scarlett Johansson and Brad Pitt.

Artémis will buy 53 percent of CAA from private equity firm TPG, the current owner. 

Financial details of the sale were not disclosed, but Artémis will combine cash and debt to pay a multiple of 13 times earnings before interest, tax, depreciation, and amortization, the Financial Times reported.

“Artémis’s interest in CAA is about geographic diversification for a portfolio that has been largely European,” a person familiar told the FT. Also, CAA’s business is not as cyclical as the luxury trade “while still being in a business that [Artémis] understands,” the person added.

TRUCKING COMPANY BUYS FREIGHT BROKERAGE

J.B. Hunt Transport Services, a Fortune 300 company with 38,000 employees, is buying BNSF Logistics, a freight brokerage business now owned by BNSF Railroad.

Details of the all-cash deal were not publicized.

“This acquisition is another step forward in our mission to create the most efficient transportation network in North America,” Hunt CEO John Roberts said.

Hunt and BNSF Railroad have worked together for years, with Hunt providing containers that move on BNSF’s rail cars.

The deal comes barely a month after Yellow, a century-old trucking company, filed for bankruptcy, citing reduced cargo traffic after consumers switched their post-COVID spending from merchandise to services. 

At the same time, inflation has raised costs in the freight business, oil prices are rising toward triple digits, and heightened competition has cut the rates freight haulers can charge.

The industry will see additional consolidations as companies seek efficiencies and cost-cutting to survive.