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The Integration Inquisition

By M. Diane McCormick

March 21, 2022

In an age of uncertainty, plotting for strategic growth demands a sharp eye for opportunity and capacity. Businesses best positioned to emerge from the pandemic with a growth mindset are those that apply a smart approach to joint ventures, acquisitions, and vertical integration.

“It’s very hard to grow organically,” says Gene Marino, AICC Chair and executive vice president of Akers Packaging Service Group. “There are not new companies that wake up today and decide they’re in need of finding boxes. Sometimes, your ability to acquire a really good ongoing concern in a market or space you’re interested in can be beneficial to growth.”

Joint Venture vs. Acquisition

To enter into a joint venture or to flat-out acquire a business? That is the question.

The growth-oriented nature of horizontal acquisitions can strengthen an individual company’s control over supplies while also creating efficiencies and geographic strategies that cut down on lead time. In acquisitions, personnel from the purchased business might retain daily operational responsibilities, but the complex decisions remain in the hands of the buyer, says Marino—“whether or not to make significant capital investment, whether or not to divest of a business line or a unit, whether or not to distribute capital, whether or not to take on additional capital or additional debt.”

No matter the rationale behind an acquisition, the key to avoiding trouble is adhering to “a clear set of strategic must-haves and nice-to-haves in terms of how you go to market or find what fits you best,” says Marino. “It’s not just doing it for the sake of doing it, because then, you wind up simply spending a lot of capital and increasing the complexity of your business. It really is going to depend on what you’re focused on trying to accomplish by virtue of an acquisition.”

Joint ventures among two or more players can take multiple forms—perhaps a 50-50 or 60-40 split in fiscal and management duties of a newly purchased or created asset. There are no rules that dictate the split or which entity runs and manages the venture on a daily basis. “It’s an element where both companies are potentially contributing something to the business, and they choose to effectively share resources, share operations, and ultimately share the profits and losses of that entity,” says Marino.

Resources and expertise came into play with Welch Packaging’s newest joint venture, initiated in early 2021. The Indiana-based company was already stocked with capabilities in corrugating, retail packaging, custom boxes, and packaging boxes when it entered into a deal adding a corrugated sheet feeder, acquired from bankruptcy proceedings in Ohio, to support its box plants.

The acquisition also included a small medium mill, “an added benefit, as we wanted to understand that type of operation,” says Scott Welch, founder and president of Welch Packaging.

To further that effort, Welch Packaging took a joint venture partner that knew the mill side of the business. The partner provides the expertise needed for a successful first foray into mill operations that support the corrugator, as well as serve as a supplier for external customers.

The new entity that emerged is now called Green Meadows Paper Co. “We have invested heavily in both the sheet feeder and the mill to improve the product quality from both operations,” says Welch.

Welch notes pros and cons to integrating operations. On the con side, the internal customer is “at the mercy of the vertical supplier,” subject to disruption along the entire chain if something goes wrong with service, quality, or any other element.

On the other hand, integration offers the ability to control cycle time and quality, plus the freedom to innovate with products. Costs come down, too, through synergies in administration, freight, and talent management.

The Green Meadows mill is a recycled paper processing mill with “a nice niche,” Welch adds. “We intend to keep it small and focus on strategic customers that value the products and service experience that we will deliver.”

The mill joint venture dovetails with Welch Packaging’s focus on serving as a high-performing local converter. In that atmosphere, producing as well as buying sheets contributes to “a competitive advantage,” Welch says. “Every supplier has a unique proposition to the market, and we feel fortunate to optimize everyone’s strength as well as streamline our operation.”

Strategic Integration

Industry insiders agree: Integrating corrugating capabilities into boxmaking isn’t a universal solution to the challenges of supply chain, but it helps.

Welch Packaging’s full-sized corrugator runs only about half of the company’s volume needs, so two partners, plus the Green Meadows sheet feeder, provide the rest.

Internal integration of corrugating capabilities creates redundancy and enhances flexibility by adding more options for every situation. A supplier can’t deliver, just when a major customer needs a shipment? Divert trucks from a less urgent route. A COVID-19 outbreak forces a supplier to shut down a shift? Step up production in-house to cover the difference.

“The beauty of having your own corrugator is that you can allocate the product across the system to complement and leverage with your suppliers,” Welch says. “You have all that optimization you can achieve by having those partners, but at end of the day, you still have the security blanket.”

And of course, suppliers will return the favor. If Welch Packaging’s own corrugator goes down, “it’s nice to know that they could ramp their volume up,” Welch says. “They can help us.”

Ensuring a return on the investment in corrugating capabilities demands that the machinery be steadily occupied. “The capital to put in a corrugator is very significant, and if you don’t have the volume to operate that corrugator every day, it can be a very expensive,” says Welch. “You can lose money pretty easily if your trim pool is not good, your waste is high, and you don’t have enough volume to absorb the fixed costs of the operation.”

Marino agrees that strong vendor relationships remain necessary to fill the strategic but inevitable gaps in vertical integration. “There are certain grades we don’t run on our corrugator,” he says. “I still have to make a call to a vendor who will make sheets for me because I choose not to carry different grades or different varieties of paperboard.”

While vertical integration offers multiple advantages, including independence from suppliers, it also runs complexities upstream or downstream, adds Marino. A box plant that invests in making its own sheets now has responsibilities for buying and storing containerboard and maintaining expensive equipment. A mill, once acquired, demands a constant supply of personnel and feedstock that keep it running almost 24/7, plus strategically planned preventive maintenance breaks in order to reap returns on the costly investment.

That’s why it’s important to remember, when contemplating any sort of integration, that “there are some very efficient and very well-run suppliers out there,” Marino says. “It’s really like anything else. What will be the return on the investment in capital in order to make that move?”

Pandemic Agility

Even as the global economy experienced upheaval from the COVID-19 pandemic, Welch says that the acquisition that led to creation of Green Meadows Paper Co. “could not have come at a better time.”

“All suppliers have struggled the past year,” he says. “Integrating and having more control of our supply was a distinct benefit for Welch. We have certainly benefited from having input or control rather than being at the mercy of the free market.”

But as Marino notes, an economic crisis can exacerbate the existing challenges of integration, depending on the business model. Some in the industry run their own truck fleets, while others choose to outsource transportation. Even before the pandemic, the driver shortage—worsening now as the last of the baby boomers age into retirement—created roadblocks for both.

It’s a dilemma that Welch and his team manage every day, but one that extensive integration makes manageable. “Having the ability to build redundancy plans and alternative options, that’s where having control is an advantage,” he says. “I’d rather fail myself than get mad at somebody else for holding me up.”

Few companies have been immune to the supply chain and personnel challenges of the current economic climate, Marino says. “We’ve just had to be a little more proactive in how we maintain and turn over inventory stock and work with our suppliers to make sure we’ve got the least amount of interruptions possible,” he says.

In its 50 years, Akers Packaging Service Group has acquired or started 13 paper and packaging businesses—13 sites in six states. The size that comes with those acquisitions and that integration has allowed Marino’s Akers Packaging “more responsiveness and more flexibility because we could rely on other plants for spikes in business,” he says. “It’s the ability to rely on other locations to continue to be responsible and meet customer demand versus the single-site facility that, let’s say, had a COVID outbreak that took half the shift down. The size speaks to our ability to have replicated assets that we can leverage and rely on across our platform.”

Every business in the corrugated realm is adapting to a new normal of people and supply shortages, Marino says. Integration offers a tool for managing. “Ultimately, if push comes to shove, if I have the board and a vendor tells me they can’t do a job, I have the ability to run it,” he says. “Industrywide, many would tell you that for larger customers, they’ve increased their safety stock so they don’t run out. They can try to be a little more strategic in how to manufacture when that call comes in. You have to take care of best your customers.”

As companies build capabilities through acquisition or joint ventures, the key to successful integration and growth is retaining a strong company culture across sites. In the case of Welch Packaging, it’s a commitment to community and to each other, as Welch saw when the entire enterprise stepped up to help a newer employee who lost his home in a fire.

New ventures, such as a corrugator purchase, demand the confidence that “we can sustain something that we bought,” Welch notes, especially to avoid devastating the people who work the site and their families if the initiative fails.

“That you have to control supplies is just the reality of this business, but more important to us are the other pieces—the ability to recruit talent, the ability to develop talent, and most importantly, the ability to expand your company culture,” he says. “Those are the real things when you think about integration or expansion. If we can do those things, we feel we are on the right path.”


M. Diane McCormick is a Pennsylvania-based freelance writer.