McKinsey Says Do More Small Deals. I've Seen What Happens When Companies Don't.

I'm a Packaging Coordinator at a 180-person food company, and I've spent the last four years watching what happens when packaging companies grow the wrong way. McKinsey just published a report that explains a lot of what I've seen. The headline finding: paper and packaging companies should pursue multiple smaller deals throughout the year — what McKinsey calls "programmatic M&A" — rather than chasing large, infrequent acquisitions. According to their analysis of roughly 100 companies between 2010 and 2024, the top-quartile performers who followed this approach delivered median total shareholder returns of 12.2%, compared to the 1% CAGR the broader sector managed between 2020 and 2024. That gap is not subtle. And from where I sit, coordinating four to eight packaging suppliers at any given time, the on-the-ground reasons for it are not subtle either.

Why the Industry's Current Numbers Should Alarm Everyone

Let me set the context, because the numbers McKinsey is working from are genuinely sobering. Total shareholder returns in paper and packaging averaged 10% between 2009 and 2014. Then they dropped to 6% over the next five years. Then they fell to 1% CAGR between 2020 and 2024. That's a decade-long deceleration, not a pandemic blip. McKinsey attributes it to volatile demand, rising input costs, lower consumer spend on discretionary and durable goods, destocking across the supply chain, and interest rate uncertainty — which, honestly, matches everything I've been hearing from our suppliers since 2022.

Deal volumes in the sector peaked in 2018, dropped sharply in 2020, and while they've partially recovered since, they haven't returned to pre-COVID levels. Meanwhile, average deal size has increased, and those larger deals are being financed increasingly with equity rather than cash or debt — which McKinsey reads as buyers wanting to share risk with sellers. In my less charitable reading, it sometimes means buyers don't have full confidence in the valuation. But I'm getting ahead of myself.

What "Programmatic" Actually Means — and Why It's Different

McKinsey defines programmatic M&A as making more than two small or midsized deals in a year, targeting a median of about 15% of market capitalization per deal. The logic is that smaller deals are easier to integrate, less risky to execute, and allow for incremental capability-building over time — rather than betting everything on one large acquisition that has to go right.

The data backs this up fairly clearly. Top-quartile companies executed two to three times more acquisitions than their peers, with about two-thirds of their deals classified as programmatic. They achieved almost four percentage points of excess annual shareholder returns compared to companies pursuing one-off opportunistic deals or pure organic growth. They also saw nearly 4% better annual revenue growth, approximately 27% higher gross margins, and almost 13% better returns on invested capital. That last number — 13% better ROIC — is the one that sticks with me. Because returns on invested capital is exactly where poor integration destroys value.

McKinsey gives an example of an American packaging company that acquired a handful of smaller companies focused on high-margin components like closures and dispensers — segments with recurring demand, defensible intellectual property, and strong customer stickiness. The result was improved multiples and better buy-side credibility. That's a clean story. And it works precisely because the acquirer was focused on specific, complementary capabilities rather than buying scale for its own sake.

What I've Seen When the Approach Goes Wrong

In Q1 2024, after our third supplier change in 18 months, I sat down and tried to document what each transition had actually cost us. Not just the obvious stuff — requalification runs, new tooling deposits, updated artwork templates — but the soft costs: the two weeks where our QA team was running parallel samples on overlapping specs, the month where our lead times stretched because the new supplier's MOQs didn't match our run sizes, the internal meeting time spent explaining to our brand team why the Pantone match looked different on the first production run. Roughly $11,000 in direct costs, probably $8,000 more in time I couldn't fully quantify. That's one transition, at a mid-size food company, with one packaging format.

Now imagine doing that across multiple subsidiaries, with converters in different geographies, after a large acquisition where the integration strategy wasn't defined before the deal closed. I've talked to people who've lived through that. It's not pretty. And it's exactly the scenario McKinsey is warning against when it says companies often fail to integrate central operations versus preserving a franchise structure — making that decision before close, rather than improvising after.

The talent loss point is one I feel strongly about. McKinsey notes that deals often fall short when the company loses critical talent, and that cultural misalignment slows integration. I've seen this play out in a smaller version at the supplier level: a key account manager leaves during a transition, institutional knowledge about our specifications walks out with them, and suddenly we're re-explaining things we thought were settled. At the scale of a full acquisition, that dynamic can unravel months of integration work.

The Roll-Up Risk That Nobody Talks About Enough

There's a specific M&A pattern McKinsey mentions that I want to flag, because I've seen it used both well and badly. "Roll-up" strategies — buying multiple smaller converters or packaging companies and combining them into one consolidated platform — are increasingly common. When done well, with focus on one or two key product lines and genuine operational integration, they create real scale advantages. When done badly, they create a holding company that owns a bunch of suppliers who still operate as silos, share no processes, and deliver inconsistent quality because nobody standardized anything after the acquisition.

I've worked with suppliers who were clearly acquired as part of a roll-up and then left to figure out integration on their own. The giveaway is usually the accounts receivable process — three different invoicing formats, two different credit term structures, one of them still running on the legacy ERP from five years before the acquisition. (ugh.) That's the kind of thing that gets very visible very fast when you're trying to reconcile a quarterly vendor spend report.

McKinsey's recommendation — define the integration strategy before the deal closes, decide whether you're integrating centrally or preserving a franchise structure, anchor the operating model in the deal rationale — sounds obvious. But apparently fewer than most people think are actually doing it upfront. The article notes that many industry players haven't built the M&A capabilities or the proactive sourcing engines needed to execute this well. They're doing infrequent deals with limited follow-through, which is exactly the pattern correlated with the weakest performance outcomes.

What This Means If You're Not the Acquirer

Here's the angle I haven't seen discussed much: what should packaging coordinators and procurement managers be watching for as this consolidation wave plays out? Because we're the ones who feel it first when a supplier gets acquired and everything goes sideways.

A few things I now watch for when a key supplier announces an acquisition. First: does the acquirer communicate anything about the integration timeline and whether our account structure is changing? Silence is usually a bad sign. Second: does the new parent company have a track record of post-acquisition quality consistency, or a history of degrading the acquired entity's service levels? Third: is the deal being financed with equity, which might signal the acquirer is stretched, or with cash from a strong balance sheet?

None of this is in McKinsey's report. But it's the ground-level translation of their framework. Programmatic M&A done well creates better, more capable suppliers. Done badly, it creates instability that ripples through your supply chain in ways that don't show up in any shareholder return calculation.

Over 80% of C-level and senior executives in paper and packaging told McKinsey they expect M&A activity to increase in the coming years. Nearly half said they'd pay a 20-25% premium for the right assets. That activity is coming whether or not companies are ready for it. The question is whether they — and we — are doing the preparation work on the front end. McKinsey says the ones who do are outperforming by a lot. From what I've seen, that checks out.

This worked for our operation — mid-size food company, domestic distribution, four to eight active packaging suppliers at any time. If you're running global supply chains with dozens of converters across multiple product categories, the stakes are obviously higher. But the principle is the same: smaller, more frequent, better-integrated moves beat infrequent big bets. The data says so. My expense reports say so too.