RPC Group is in talks on a possible sale to Apollo Global Management and Bain Capital, with the private equity interest in the fast consolidating market lifting shares in Europe's biggest plastics packaging maker by 25%.
Private equity has long been drawn by reliable cashflow and growing demand from online shopping, with a spate of takeovers by bigger packaging players further spurring their interest.
Apollo and Bain have until October 8 to make a firm offer, Britain's RPC said after a Bloomberg report that it was exploring options including a sale.
"The European plastic packaging market is considerably less consolidated and so therefore there are opportunities to use people like RPC as a platform in order to consolidate," Panmure Gordon analyst Adrian Kearsey said.
Kearsey added that the more than 26% drop in RPC's share price in the past year provided a value opportunity for the private equity players and analysts at Peel Hunt, who have a buy rating on RPC, expect other private equity bids.
Although the buy-out interest comes amid increased scrutiny of plastic waste, brokerage Jefferies said last month that possible British regulations play to RPC strengths, including its limited exposure to single use items like straws and cutlery.
RPC, which operates in 34 countries, had a market capitalisation of £2.78 billion as of Friday, although this rose to £3.48 billion on Monday.
The world's big packaging firms have been active in M&A with Australia's Amcor Ltd agreeing last month to buy U.S. rival Bemis Company Inc for $5.25 billion, a 25% premium to the Bemis' close on August 2.
Among other significant sector consolidation, DS Smith Plc agreed to buy Spanish rival Europac for €1.9 billion, a premium of about 8% from its previous day's close on June 1.
And Ireland's Smurfit Kappa bought Dutch recycling firm Reparenco in July.
Free Cash Flow Dip
Jefferies expects further bolt-on and major acquisitions in Europe, although Northern Trust Capital markets analyst Paul Moran, who has a "sell" rating on the stock, remained sceptical of RPC being acquired by private equity firms.
"Given the importance to buyout firms of cash generation and stable profit growth, our central view remains a detailed look at the cash generation at RPC will not lead to an acquisition,"
RPC, which has more than £1.1 billion in net debt, has seen its free cash flow dip 4.2% to £229 million in the year to March 31.
In July RPC, which has been under investor pressure to raise cash and cut capital spending, said it would prioritise the proposed disposal of some assets as it looked to generate capital for expansion or to return money to shareholders.
Last month, it said it would raise $95 million by selling its Letica food packaging business, adding that it was marketing its spirits closures business at Bridge of Allan, Scotland to interested parties. It also said then it was preparing to sell its European injection moulding automotive business.