Apollo Knocked Out

Apollo outbid on plastics deal

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What's going on?

US private equity heavyweight Apollo Global got knocked out of its planned $4 billion takeover of Europe’s biggest plastic packaging supplier RPC Group on Friday.

What does this mean?

After months of training tough negotiations, it seemed like a deal between Apollo and RPC – which counts Kraft Heinz and Nivea among its customers – was done. But just before the final bell, America’s Berry Global (a rival plastic packaging supplier, incidentally once owned by Apollo) stepped into the ring with a higher offer. RPC duly accepted and left Apollo laid out on the mat.

Apollo’s built a reputation for playing negotiating hardball of late – but its now lost out on deals twice in quick succession. In January, Arconic – which made cladding linked to London’s 2017 Grenfell Tower fire – called off a sale to Apollo after the pair failed to agree on what the company was worth.

Why should I care?

For markets: Private equity’s cash continues to pile up.

The amount of unspent cash private equity firms have to invest in companies topped $2 trillion last year. And with companies like Apollo dropping the ball on deals, that figure may now have risen further. Private equity’s also an “alternative” type of investment likely to attract more money from investors who’d typically focus more on the stock market – they’ll be on the hunt for higher potential returns than stocks are predicted to offer this year.

The bigger picture: Plastic not-so-fantastic.

Some eco-friendly consumers (though fewer than you might think) are putting pressure on RPC’s and Berry’s customers to reduce their plastic use. Succumbing to this (as the fashion industry did) could result in costs rising, perhaps driving packaging firms to team up and benefit from potential cost synergies. RPC might’ve been more likely to resist the winds of change under Apollo’s ownership as private equity firms have a reputation for slashing costs as opposed to investing in businesses – although that too might be changing

Originally posted as part of the Finimize daily email.

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