Verso Paper announced that it would acquire NewPage Holdings in a deal worth $1.4 billion. NewPage rejected a similar offer from Verso in 2012, also valued at $1.4 billion. So what changed this time around? Quite simply, it’s the environment: Both paper companies realize the paper market is shrinking and that’s not about to change any time soon.
One of the top reasons for acquisition is to expand in a declining market. Acquiring a bigger portion of a waning market allows a company to maintain or even increase revenues while waiting for the market to rebound. The Verso Paper-NewPage acquisition fits into this category.
The paper industry is facing stiff competition from online and digital media and is under pressure from environmental issues. According to the Manufacturers Alliance for Productivity and Innovation (MAPI), production in 2013 was flat compared to 2012 and the market is expected to grow just 1% in 2014. Compared quarter-by-quarter, paper production momentum declined by 6%. To survive, the two paper companies need each other. By combining they can own a larger slice of a smaller market and leverage cost synergies from economies of scale.
If you’re in a static or declining market, don’t despair! There are plenty of creative solutions to ensure your company grows despite what’s happening in the market. Analyze your current position, think about your growth options and develop your strategic plan.
If you have any questions, feel free to reach out using the comment box below.
