Why the Pace of M&As Remains Brisk for Label Companies

For several years now, the pace of mergers and acquisitions in the packaging and label space has remained strong. Many buyers have concluded that growth by acquisition is easier than organic growth. That makes them willing to spend significant amounts of money on adding the kinds of companies they want to the investment platforms they are building.

The vitality of the M&A market for labels is plain to see in three transactions New Direction Partners closed on behalf of sellers within a recent six-month period.

Objection Overruled

In one, we were overwhelmed with offers almost from the moment we went to market. This put the owner in the enviable position of being able to pick the buyer he preferred, be it a financial buyer, a search fund, a family office, or a strategic buyer — all were eager to make a deal.

Another selling client had a significant customer concentration issue — normally a red flag to buyers who don’t want to see a large share of the volume coming from a single account. But in this case, the customer was so attractive and so loyal to the seller that the buyer was able to overcome his reservations and close a transaction that was advantageous for both parties.

Our third client was a family business that had developed into a leading producer of both custom printed and stock labels. The buyer, also a label supplier, liked not only the seller’s extensive inventory but its experienced workforce, its diversified manufacturing capabilities, and its well-established brand in the label market.

We predicted last year that 2026 would see plenty of M&A activity in labels, and our experience to date indicates that the forecast was accurate. The packaging and label segment as a whole continues to do well, so much so that deals should continue to be made even if the economy starts to tilt toward recession.

A Bit Closer to Earth

With so many financial buyers competing to roll up label companies, valuations and multiples grew to a level that couldn’t be sustained. We anticipate some of the rollups to begin selling their acquired businesses to other rollups. The multiples will still be very attractive, but maybe not quite as high as they were during the height of the bidding wars.

Another shift in the M&A label market is the move toward smaller companies. Critical mass has always been attractive; historically, sky-high EBITDA multiples were reserved for firms with $25 million or more in revenue.

But financial buyers have already absorbed most of those larger independents, leaving few of that size available. As a result, the “sweet spot” has moved downmarket, with many of the remaining attractive independents now in the $10 million to $15 million revenue range.

This means a label company in this range is increasingly viewed as the “ideal” size for acquisition. Most of these companies are profitable enough to be sold on a multiple-of-EBITDA basis, and the multiples they can look forward to will be attractive.

Durable = Desirable

Durable labels for industrial items occupy a segment that hasn’t seen nearly as much rollup activity as the prime label space. That makes producers of durable labels well worth a look to buyers seeking opportunity in a relatively untouched niche. Buyers also favor label producers that have transitioned from conventional to digital printing.

This raises a point about investing in production technology when a company is being marketed for sale. There was a time we would have advised against taking on the debt of an equipment purchase if a sale was imminent. Now, we tell clients that if the company genuinely needs it to keep its operation moving, go ahead and invest in it.

The reason is simple. The buyer would prefer to see a new piece of essential equipment running on the floor than be obliged to buy the same piece of equipment post-sale.

Loyalty Above All

Preparing a label business for sale is not too different from bringing any type of business to market. One advantage label companies have is the “stickiness” of their customers.

Once a customer finds a supplier capable of delivering a high quality label at a reasonable price, the customer becomes extremely reluctant to switch vendors. That brings a recurring stream of revenue and a predictable cash flow — two standout items on the seller’s balance sheet.

The only downside to this model is that these relationships can take a long time to cultivate. But a shop that can demonstrate that it has recently added some of them will be particularly attractive to buyers; one of our clients could show that nearly all of its top 20 customers had been on its account list for more than 20 years — and it had just brought on several new accounts.

The Commercial Print Connection

The most aggressive acquirers tend to be financial buyers looking to expand their existing platforms. Among strategic buyers, we sometimes see commercial printers trying to expand into the label space by purchasing label companies.

But label companies sell for higher multiples than commercial printing companies. That can push them to focus on segments like folding cartons, which trades at attractive multiples but more in line with print footprints.

Everything we’re seeing in the label space tells us we’re on track for another solid year of M&A. Our advice to owners of label companies is the same as always: Think about selling now, even if you’re not selling yet. The better prepared you are to move, the more satisfying the outcome may be — especially in a segment as dynamic as labels.