A perfect match?

Private equity and the global

pulp and paper industry

A perfect match? Private equity and the global pulp and paper industry 1
 Contents
4 Introduction

7 The rise of private equity

12 The attractiveness of pulp and paper

16 Value creation and private equity

20 Private equity and pulp and paper

– a perfect match?

22 Final remarks

23 Further reading and contact information

2 A perfect match? Private equity and the global pulp and paper industry
A perfect match? Private equity and the global pulp and paper industry 3
Introduction
Private equity has until recently been
­considered as an unwelcome guest at the
­table of public companies and the media.
Despite this, ever since its advent in the
1970s’, PE has grown spectacularly. deals below USD 1 billion in value. Many
The numbers attest to this: in 1980, firms are also owners of basic industry
the total funds available for PE was only companies, and others are diversifying
USD 5 billion.
Total global M&A deals in 2007 were
USD 4,5 trillion, and PE share of that was
a staggering USD 900 billion (source:
Thomson Financial). In the US, PE deals
reached USD 454 billion – an increase increasing investments from PE firms. in June 2008 for NOK 4,2 billion
of over 44% over 2006. This growth was
achieved despite the effects of the finan-
cial crisis which started during the ­second
half of 2007. PE has become a ­global
force with an increasing impact on the
world’s financial markets and industry.
The biggest PE firms have become
­financial powerhouses with the ability to
­acquire some of the biggest corporations
in the world and shape entire industries.
Many of these firms act also as investment
banks and manage alternative assets such
as hedge funds and mezzanine financing
in addition to PE.
In addition to the huge megadeals gener- • Apollo Management acquired Inter-
ating a lot of publicity, these companies national Paper’s coated paper business
are increasingly also interested in the for USD 1,4 billion in 2006.
so-called mid-market consisting of ­smaller
• Altor Partners in Sweden acquired
Papyrus – the merchanting division of
Stora Enso – in 2008 for USD 1 billion.
their portfolio into this sector as well. • Sequana Capital acquired Map – the
merchanting division of M-real – for
The global pulp and paper industry –
USD 520 million in 2007.
a ­basic, commodity industry with global
turnover of approximately USD 500 billion • Norske Skog divested its Korean paper
– has during the past few years ­attracted mills to Morgan Stanley private equity
Already more than 25% of US paper and (approximately USD 600 million).
board production capacity is owned by
The above list is not comprehensive –
PE. Some ­recent high profile examples
many smaller deals have also taken place
are ­listed in the ­following:
in recent years.
• Stora Enso’s North American ­paper
While North America is clearly ahead of
­operations were acquired by ­NewPage
Europe in terms of overall transactions and
– a subsidiary of Cerberus Capital
the role that PE firms play in them, the
­Management – in September 2007
same trend might take place in Europe and
for USD 2,5 billion.
Asia-Pacific. Until only a few years ago,
• Boise Cascade’s divestment of their very few PE firms had any pulp, paper or
­paper and packaging assets in 2007 packaging assets in their portfolios.
to Aldabra Acquisition – a subsidiary
Pulp and paper (including fiber-based
of Madison Dearborn Partners – for
packaging) can be characterized as a
USD 1,6 ­billion.
troubled industry. The financial results

4 A perfect match? Private equity and the global pulp and paper industry
have been poor for six consecutive years
now and 2008 does not look like the year
­during which the industry would turn the
­corner. There are many reasons for this –
low demand growth in North America and
Western ­Europe in many grades, persistent
over­capacity especially in Europe, rising
oil prices and raw material costs and the
weakness of the US dollar. On the other
hand, demand in Asia and Eastern Europe
remains healthy and there are many pulp
and paper companies that are producing
healthy results even in this extremely
challenging business environment.
The industry remains fragmented, with
the ten biggest firms controlling only a
25% global capacity share. For many years
there have been speculations that even-
tually the industry would consolidate and
that this would be the key to improved pro-
fitability. That has not happened – industry
on its own has been unable to ­significant-
ly consolidate and balance demand with
supply. Rise of PE has prompted many
pundits to speculate whether PE could act
as a catalyst and drive the consolidation
through.
In this Ernst & Young report we look at the
impact of PE in pulp, paper and packaging that PE plays today and could play in the
and how attractive this sector could be for PE. future. For the purposes of this report, we
• How do PE firms create value? discussed the above issues with our clients
• What types of industries and companies to gain new insights on this very current
are they interested in? and strategically important issue. Based
• Should PE firms become more active in on our findings, we believe that both pulp
the sector – could this sector become and paper and PE firms can greatly ben-
more attractive to them? efit from increased collaboration and in-
• Why do the PE firms seem to be more volvement.
successful than traditional management
We hope that both our private equity and
and public ownership?
pulp and paper clients will find this report
• What is the likely role these firms might
insightful and helpful for identifying new
play in industry restructuring?
value creation opportunities and develop-
Ernst & Young has for many years served ing new strategies. We sincerely thank all
both the leading global PE firms and the contributors for their time and insights.
world’s biggest pulp and ­paper ­companies
– delivering advice in ­auditing, trans­
actions, tax, risk, IT, outsourcing, perform-
ance improvement and financial manage-
ment. We have a ­global network of dedi-
cated professionals ­serving both ­sectors
and we talk ­regularly to the top manage-
ment of our clients on a wide range of
­issues. Nearly all the leading ­companies
of both sectors are our long-term clients.
We are in a unique position to provide an
objective, fresh look at the restructuring Timo Uronen,
process for pulp and paper and the role Director, Pulp and Paper
A perfect match? Private equity and the global pulp and paper industry 5
Private equity has become
a major force in almost
every industrial and
financial sector.

6 A perfect match? Private equity and the global pulp and paper industry
The rise of private equity
PE has become a major force to
be reckoned with in almost every
industry and financial sector.
These firms – whether acting
alone or in concert with other
similar firms – have been able to
put together megadeals that have
had an impact on entire industries.
The impressive growth of PE can clearly be
seen in the following (Figures 1 and 2).
PE’s growth in deal share has certainly
been impressive. And the growth of PE in
pulp and paper has also been significant
(Figure 2).
Compared with the huge total transaction
values, the main focus of the biggest PE
firms has clearly been in other sectors
than pulp, paper and packaging. Despite
significant growth, considering the huge
sums involved in overall transaction values,
the investments in pulp and paper are
still very small and represent only a small
fraction of total deal values.
One of the main reasons behind the
success of PE has been low interest
rates, which have facilitated use of lever-
age in deals. Put very simply, the ­logic
of leveraged buy-outs is the following: if
you acquire a company with for instance
80% debt and 20% equity – and are able
to increase the value in two to three years
by for instance 30% and thereafter ­exit the
firm via an IPO or a trade deal – the ­return
after debt on equity is a very handsome
150%.
However, success obviously depends on
the availability and cost of capital , the
deal itself and the ability to actually in-
crease the value of the target. Rewards –

FIGURE 1: Global M & A transactions and PE share FIGURE 2: Global pulp and paper M & A transactions and PE share
(Source: Zephyr) (Source: Zephyr)

USD Billion USD Million

3.500 30.000

3.000
25.000

2.500
20.000

2.000
15.000
1.500

10.000
1.000

5.000
500

0 0
2003 2004 2005 2006 2007 2003 2004 2005 2006 2007

Value of total deals Value of global private Value of total global deals Value of global private
equity house deals equity house deals

A perfect match? Private equity and the global pulp and paper industry 7
 but also the risks – are huge. Despite the
impressive growth, these firms have also
sometimes failed, resulting in huge losses.
Success is definitely not guaranteed and
risk management is an essential manage-
ment tool for these firms.
Most PE firms own a portfolio of very di-
verse assets. Their portfolio often includes
assets in technology & telecommunica-
tions, real estate, healthcare, ­consumer
products, media, retail and basic indus-
tries. Some also have assets in the pulp,
paper and packaging industry. The focus
of the selected firms are shown in Table 1
– the value of assets under the ownership
of these firms ranges between USD 20–50
billion (see page 10).
A number of the biggest PE firms also
specialize in distressed industries, where
the risks are higher but the rewards ingly investing in PE – these are ­generally
can be greater. For instance, Blackstone not known for reckless or ­unethical in-
Group specifies as one of its focus areas
“out-of-favor, under-appreciated indus-
tries.” Some other very big firms have
the same philosophy.
The very success of these firms has re-
sulted in increasing public scrutiny. In a
number of more publicized recent cases,
there have been public outcries against
specific deals and accusations of preda-
tory behavior by some PE firms. PE firms
8 A perfect match? Private equity and the global pulp and paper industry
have been accused of “short-termism”,
stripping respectable public companies of
assets and selling the company after hav-
ing loaded the balance sheet with debt.
Perhaps due to this image, most PE firms
prefer to operate behind the scenes and
avoid unnecessary publicity – after all, the
very name PE implies privacy.
This image is certainly not the reality
today: research shows that in many cases
PE owners generate more value and leave
the company in better shape than public
companies.
As far as “short-termism” is concerned,
average exit time today is between five to
seven years. One indication of the ­value
creation and sound management by PE
firms is the fact that many state-owned
pension and endowment funds are increas-
vestments. Despite this, most corporate
managers view PE very negatively – a poll
­carried out in Germany in 2004 indicated
that more than 50% of the 3,500 execu-
tives interviewed considered PE as “Out
of the question!”
(Source: The Economist).
Many Sovereign Wealth Funds such as
China Investment Corporation, Abu Dhabi
Investment Authority and The Government
TABLE 1: Selected PE firms and their sector focus (Source: company reports and web sites, July 2008)

Tele- Media Industry Pulp,

Tech- Real Consumer Financial Health-
communi- Retail and enter- and manu- paper and
nology estate products services care
cations tainment facturing packaging

Apax Partners ■ ■ ■ ■ ■ ■

Apollo ■ ■ ■ ■ ■ ■ ■

Bain Capital ■ ■ ■ ■ ■ ■ ■

Bridgepoint ■ ■ ■ ■ ■

Cerberus Capital Management ■ ■ ■ ■ ■ ■ ■ ■ ■ ■

Cinven Group ■ ■ ■ ■

CVC Capital Partners ■ ■ ■ ■ ■

Fortress ■ ■ ■ ■

Goldman Sachs ■ ■ ■

Hellman & Friedman ■ ■ ■ ■

KKR ■ ■ ■ ■ ■ ■

Macquarie ■ ■ ■

Madison Dearborn Partners ■ ■ ■ ■ ■ ■ ■

One Equity Partners ■ ■

Permira ■ ■ ■

Texas Pacific Group ■ ■ ■ ■ ■ ■

The Blackstone Group ■ ■ ■ ■ ■ ■ ■

The Carlyle Group ■ ■ ■ ■ ■ ■ ■

3i ■ ■ ■ ■ ■ ■

Triton Pacific ■ ■ ■ ■ ■

Warburg Pincus Capital ■ ■ ■ ■ ■ ■ ■

A perfect match? Private equity and the global pulp and paper industry 9
10 A perfect match? Private equity and the global pulp and paper industry
Research shows that in many
cases PE ­owners generate more
value and leave the companies
in better shape than when
evidenced by ­comparable public
company benchmarks.
Pension Fund of Norway have invested in
PE. There has also been a downside to this
– while the funding has certainly been wel-
come, recently there have been calls for
more transparency and disclosure, as now available for investments in a changed
well as cautions against undue influence
by foreign governments. The interest of
Sovereign Wealth Funds and pension funds
very clearly highlights the attractiveness
of PE firms and their ability to generate
higher returns for investment than what is
available in the public markets.
PE firms are affected by the general eco-
nomic conditions. The subprime crisis and
the credit crunch that started in late 2007
has impacted also the PE sector, and fund-
ing has become much more difficult. Now-
adays PE firms need to use as much as
30–40% of their own equity to finance a
major deal – a few years ago the figure 2007). These firms have a ­superb track
was closer to 20%. Use of leverage is
therefore much more difficult. ­Several
high-profile deals were cancelled in 2007
and the first half of 2008 as a result of
the uncertainty of the financial markets
– ­similarly, the turbulence of the stock
­markets ­also affected many planned exits.
A perfect match? Private equity and the global pulp and paper industry
Despite this, many PE firms completed
­impressive new funding during 2007 –
a total of USD 282 billion in the US alone
(a 25% increase to 2006). This capital is
environment. As a result, the biggest PE
firms have now increasingly changed their
focus from huge mega-deals to the less-
risky mid-market (defined as deals below
USD 1 billion). This may be one of the
reasons for the recent interest in the pulp,
paper and packaging companies.
Despite the new challenges, such as the
credit crunch, the uncertain stock market
and the increased media and political
attention, senior executives of the ­biggest
PE firms remain confident about the ­future
(Source: Ernst & Young ­sponsored private
equity Leadership Network, ­November
record of generating high returns and
they will undoubtedly ­continue to excel in
finding innovative ways to ­deploy capital
­effectively and create value in their port­
folio of companies.
11
The attractiveness of pulp and paper
At first glance, the pulp and
­paper industry does not seem
like a lucrative investment target.
Table 2 shows the profitability
and market capitalization of
some of the biggest pulp and
paper companies.
The financial results and stock market per-
formance of many companies leaves much
to be desired. However, some companies
such as International Paper, Kimberly-
Clark, SCA, Anglo-American (Mondi),
Nine Dragons, Mayr-Melnhof and Holmen
are generating healthy results even in the
current challenging business environment.
In addition to ownership, pulp, paper and
fiber-based packaging is a fragmented and
heterogenous business also in the product
dimension. Product areas like tissue, pulp,
newsprint, office papers, coated woodfree,
coated mechanical, containerboard and
paperboard are all different businesses –
with differing business logic, cost struc-
ture, end-uses and distribution. Most big
pulp and paper companies also have siza-
ble sawmilling and building products oper-
ations. These products are used through-
out the world in everyday-life by billions of
people. Growth and profitability prospects
vary by product group and region: North
America and Western Europe are mature,
whereas Central Eastern Europe and Asia
have strong growth.
In addition to demand and supply, the big-
gest reasons for the unsatisfactory profits
for most companies are the external fac-
tors. The USD is extraordinarily weak and
the price of oil has reached yet another
peak. These are both perhaps the most
volatile economic factors possible – the
US dollar has weakened 60% in relation
to euro and other major currencies (such
as CAD, SEK and GBP) in just a few years.
If and when these factors change and the
industry has restructured and reduced
costs, the surviving players should be
in a very good position to make money.
The question is, of course, how long will
this take?

TABLE 2: Key figures of selected pulp and paper companies (Source: annual reports)

Turnover 2007 EBIT 2007 EBIT 1-2/2008 Market Cap 31/12/2007

Company
(USD million) (% of sales)* (% of sales)* (USD million)

International Paper 21.890 7,6 5,8 13.859

Kimberly Clark 18.266 14,3 13,5 29.123

MeadWestvaco 6.906 4,5 4,7 5.759

M-Real 6.536 -2,7 3,5 1.569

Norske Skog 4.994 2,2 2,2 1.573

Sappi 5.304 7,2 6,6 3.475

SCA 16.864 9,6 8,5 12.629

Stora Enso 19.687 1,8 3,5 11.924

UPM 14.773 4,8 7,3 10.428

Weyerhaeuser ** 16.308 2,5 -15,2 15.098

* Including non-recurring items. ** Including real estate.

12 A perfect match? Private equity and the global pulp and paper industry
 Pulp and paper
matches the investment
criteria of many PE
firms relatively well.

A perfect match? Private equity and the global pulp and paper industry 13
14 A perfect match? Private equity and the global pulp and paper industry
 When the business environment
eventually improves and
the industry has restructured,
the remaining companies
should be able to produce
good financial results.

We have analyzed the criteria that the TABLE 3: PE investment criteria and fit with pulp and paper
(Source: EY analysis)
biggest PE firms seem to use when select-
ing a business they are interested in. This Private equity criteria Fit with pulp and paper
is based on publicly available information
Historical profitability Good
and discussions with leading PE firms and
the comparison with the pulp and paper Current profitability Poor
­industry is shown in Table 3. • North America and Western Europe: Low
Market growth
• Central and Eastern Europe and Asia: High
The attractiveness varies by grade, market
and company and obviously each PE firm Potential for consolidation High
has its own, differentiated investment Potential for cost reduction Medium
strategy. But it would seem, that overall
the pulp and paper industry matches the ­ Need for investments Medium

investment criteria of PE ­relatively well. Ownership structure Most are public companies

Enterprise values Low

Exit opportunities Trade deals, IPO

Disposable assets Forest assets, real estate, power plants

A perfect match? Private equity and the global pulp and paper industry 15
Value creation and private equity
Ernst & Young recently studied FIGURE 3: Growth in business value driven by PE
(Source: EY research: How do private equity investors create value? A global study of 2007 exits)
the value creation of PE (see
­report: How do PE investors ­create
value? A ­global study of 2007 TOTAL=23% EV growth TOTAL=24% EV growth

­exits). The high growth of PE 1%

­suggests, that these companies

Increase of
are able to generate higher value 2007 vs 2006
10% 12%
than public companies.

The average enterprise values of PE

firms compared with public company
­equivalents are shown in figure 3. The
PE out-performance
study also showed, that when PE firms 13% 12%
Public company
­exited the business via for instance an benchmark
IPO, the business had better prospects
and was better-off than at the time of
the acquisition.
2006 2007
There are several reasons behind the im-
pressive growth of PE. One obvious reason
is the skill in finding the right targets and
right timing of both entry and exit. The FIGURE 4: Sources of PE EBITDA growth in Europe in 2007
other main reasons for the difference com- (Source: EY report: How do private equity investors create value? A global study of 2007 exits)
pared with public companies is faster ­profit
growth and cost reductions. The sources
of EBITDA growth are depicted in Figure 4.
1%
Most of the EBITDA growth came from or-
13%
ganic growth – investments, new products,
new markets etc. Our findings do not sup-
port the public image of PE as a short–term
owner with focus only on costs and stripping- 52%
off the best assets of the company. While 34%
cost reductions and restructuring are
Organic revenue growth
important, they accounted for only 34%
Cost reduction / restructuring
of the total EBITDA growth in 2007. The
Acquisitions
average employment was at the same or
Other
higher level at exit than at entry. This may
come as a surprise to many industry exec-
utives.

16 A perfect match? Private equity and the global pulp and paper industry
A perfect match? Private equity and the global pulp and paper industry 17
 The success of PE firms can be ­attributed to four cornerstones
(Source: EY report: How do private equity investors create value
– A global study of 2007 exits)

Very careful and selective buying Delivery of the business plan

Private equity firms buy businesses
only after careful and meticulous re-
search. Sector focus and expertise
is also important – 70% of US deals
in the EY study benefitted from sec-
tor focus. This often means hiring
industry professionals to both ana-
lyze the business and then possibly
to run it. Three-quarters of the deals
in the US resulted from proactive
deal strategies. Exhaustive evalua-
tion and due diligence processes are
a standard component of the deal.
After the deal, PE firms also take
great pains to manage the transition
and integration processes very thor-
oughly. In short, they are very well-
prepared, they have deep pockets
and they manage all the steps in the
M&A process very professionally.
PE firms are strong and active own-
ers of the firms they acquire. They
invest the time and the commit-
ment to look after their investment
– usually this means implementing
rapid changes. New business plans,
often new management and incen-
tives are put in place and execution
of the business plans is monitored
closely with strong board-level
leadership. According to the EY
study, 74% of the cases studied
in the US included management
changes; in Europe the correspond-
ing figure was 68%.

18 A perfect match? Private equity and the global pulp and paper industry

Highly motivated management
PE firms are demanding owners.
They select the best possible team
to execute the business plans, and
while the targets are usually very
challenging, the incentives are ­also
very attractive. Success is hand-
somely rewarded, and the winning
management team is often granted
equity in the business, typically be-
tween 5% and 10%.
A perfect match? Private equity and the global pulp and paper industry
Successful and well-executed exit
PE firms make money from their
­acquisitions at exit. Successful
­timing and planning are critical, erates, that might not have received the
and exit considerations are ­taken
­into account at target selection
­level. The exits are usually IPOs’,
but trade deals or selling to another
PE firm are also possibilities.
Average exit time is between five
and seven years.
It is clear, that PE firms are on average
performing better than their public coun-
terparts. Some of the acquired business-
es may be carve-outs from big conglom-
management attention and investments
needed. When taking a firm private, many
administration and corporate governance
costs such as SOX 404 are removed. De-
cisionmaking is faster and more straight-
forward and many non-core assets such as
­real estate, land or production units can be
divested. Capital is readily available for fi-
nancing growth through acquisitions, in-
vestments or expansion into new markets.
Perhaps the biggest benefit is the ability
of the new owners to take a fresh, objec-
tive look at the business – past mistakes or
structures do not encumber the new own-
ers and management. A new strategy and
business structure is thus easier to formu-
late and implement.
19
Private equity and pulp and paper
– a perfect match?
Ernst & Young has approached
the leading PE firms to discuss
the attractiveness of the pulp,
paper and packaging industries.
The clear majority of the top 20
firms responded that this sector
is not in their near-term focus.
20
However, some big PE firms already have
substantial assets in the sector – examples
are Madison Dearborn Partners, ­Cerberus
and Apollo Management. The result of
our query is very interesting for the in-
dustry itself and the PE firms that already
have assets in the sector. For the industry
this means that restructuring efforts must
be continued and PE firms will not act as
a catalyst for consolidation. At the same
time, the PE firms that have entered the
sector can enjoy a relatively green pasture
– there is limited competition from other
PE firms for the best deals.
While global consolidation through in-
creased PE involvement is not realistic, re-
gionally and within specific grades – such
as coated woodfree or tissue in Europe or
paperboard in Asia – the situation is differ-
ent. There are opportunities for taking a
dominant position regionally in a particular
grade and this could bring about ­regional
consolidation and improved profitabili-
TABLE 4: Added value for PE and pulp and paper (Source: EY analysis)
Added value for private equity
Potential for consolidation in specific grades and regions
Undervalued assets
Interest in mid-market and basic industries
Disposable assets
Potential for cost reductions
Gradual improvement of the business environment
A perfect match? Private equity and the global pulp and paper industry
ty. Some PE firms are at the moment very
­actively studying these opportunities.
We feel there is a very good match between
some PE firms and pulp and paper. Pulp
and paper industry needs restructuring,
new ideas and better demand and supply
management. Some companies are cur-
rently unable to close or divest old capac-
ity due to the resulting write-downs, while
others may need capital in order to expand
in the emerging markets. In the on-going
restructuring process, many companies
need to divest non-core assets – a trade
deal is often not possible due to competi-
tion authorities, whereas a PE deal could
be. Many of the past M&A deals of the in-
dustry have been unsuccessful. Partnering
with a well-known PE firm can ward-off un-
welcome bids by competitors or ­other PE
firms. PE can be a ­solution and a partner
in all of the above.
Within a specific product group and re-
gion, consolidation and subsequent cure of
Added value for pulp and paper
Restructuring through disposals and carve-outs
Capital for expansion eg in BRIC-markets
M & A and financial expertise
New business concepts and management
experience from other industries
Reduced administrative and governance costs
Fast decisionmaking
the industry’s illnesses are possible. Many
companies share prices have during 2008
declined and they have disposable as-
sets. The market is mature in North Amer-
ica and Western Europe – to be sure. But
many of the products and end-uses of the
industry are products used by billions of
people in everyday life – they are not going
to be substituted in many years, if ever.
The current credit crunch and financial
turbulence have made huge mega-deals
more difficult and the recently built-up
funds are looking for investment opportu-
nities. Regional and focused investments
in the pulp and paper sector meet many of
the investment criteria of a number of PE
firms. A summary of the match between
the requirements of both sectors is shown
in table 4.
PE firms have hundreds of companies
across diverse industries under their
management – this could provide a huge
pool of new business concepts and man-
agement experience from other industries.
PE firms are serial buyers and sellers of busi-
nesses – in 2006 they completed altogether
3000 buyout deals. One of their core compe-
tences is M&A and financial management, and
pulp and paper companies could benefit from
their knowhow. Under private ownership,
costs associated with public companies would
be reduced and difficult decision-making re-
garding, for instance capacity closures, would
be more straightforward. There are possibili-
ties for operational cooperation – especially in
the case of carve-out deals.
It would be an overstatement to say that PE
and pulp and paper is a “perfect match”. The
industry remains in trouble in North America
and Europe – this is a big, capital intensive
and cyclical business with low market growth
except in Asia and Central Eastern Europe.
Many PE firms have several other very inter-
esting investment alternatives. But for some
PE firms currently also investing in basic
­industries through mid-market deals and in
certain products and regions it could be very
attractive.
A perfect match? Private equity and the global pulp and paper industry 21
Final remarks
During recent years, private ­equity
has risen to the forefront of the
­financial markets of the world.
Contrary to popular belief, these
firms usually leave the business
they have acquired better-off prof-
itability, a hold-period of five to
seven years, maintained or ­higher
employment levels, investments
in new products and markets and
comparisons with public compa-
nies all testify to that.
22
Most of the big PE firms do not ­consider
the pulp and paper sector attractive and
their investment focus is elsewhere. This
means, that any major industry restructur-
ing and consolidation on a global scale is
not likely – at least not through PE. There-
fore, we are unlikely to see any major
megadeals or takeovers funded by PE in
the near future. However, some of the big-
gest PE firms already have assets in the
sector and they have indicated their inter-
est to expand in pulp and paper in addition
to many mid-market firms – they can enjoy
a relatively green pasture.
Regionally and within specific grades
there are significant opportunities. Many
firms have also built-up major funds re-
cently, and this capital needs to be effi-
ciently deployed. In many ways, pulp, pa-
per and fiber-­based packaging meets the
investment criteria used by these firms.
The business environment will eventually
change – preferably sooner than later.
A perfect match? Private equity and the global pulp and paper industry
While it really can’t be called a “perfect
match,” our findings suggest, that there
is a case for increased collaboration and
interaction between PE and pulp and pa-
per. The industry provides opportunities
for value creation and consolidation within
specific regions and grades, while PE pro-
vides capital, a fresh look at the business,
new management ideas and restructuring
possibilities. We believe, that the trend of
increasing PE investment in pulp and pa-
per that has been seen in North ­America
will also be seen in other regions. This
will in our opinion create new value cre-
ation opportunities and better profitabil-
ity for both the industry and the private
­investors.
Further reading and contact information
Ernst & Young has produced the following For further information, please contact:
thought leadership reports, that are relevant
to both PE and pulp and paper: Timo Uronen
Director, Pulp and Paper
• Private equity – 2007 year in review

• How do private equity investors create value? – 2007

• The best of both worlds

– Why every consumer products company should have
a private equity strategy(2008)

• Mining – is now the time for private equity? (2007)

• At the crossroads – global pulp and paper industry report

(2007)

• The art of turnaround management

– The challenges of change in the paper industry (2007)

A perfect match? Private equity and the global pulp and paper industry 23
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24 A perfect match? Private equity and the global pulp and paper industry