As industry attention focuses on stabilizing recycling markets, vertical integration is a potential option for stakeholders seeking to secure supply or guarantee demand.
Post-Covid growth challenges are helping drive M&A in the packaging sector, Abhinav Goel, partner in the packaging and chemicals value chain at McKinsey & Co., told Resource Recycling. But Jeremy Wallach, partner in the chemicals practice at McKinsey, cautioned that vertical integration may not necessarily reduce recycling market volatility for the packaging industry.
In a survey for the recent McKinsey report “Reigniting growth through M & A: A playbook for paper and packaging companies,” executives ranked sustainability among the top reasons to pursue mergers and acquisitions. Goel said sustainability claims are no longer merely to differentiate one company from another, but rather are baseline expected capabilities – or “table stakes.”
He said sustainability shows up in M&A deals in two main ways: securing supply of recyclable or sustainable materials, and driving innovation in packaging design. In short, companies pursue M&A not just for growth, but also to build credible sustainability capabilities across their portfolio, he said.
However, Wallach said M&A and vertical integration are not easy fixes for price volatility and other market concerns. In addition, there’s little evidence of packaging companies backward-integrating into bale supply, he said.
So far McKinsey consultants have mostly seen M&A deals between similarly structured packaging and converter companies, rather than entities seeking vertical integration by shoring up their upstream or downstream value chain.
“Folks in the industry have complained for certainly as long as I’ve been kicking around recycling, that this volatility in both bale pricing and recycled product pricing makes managing a business very, very challenging,” Wallach said.
He said there’s merit to the idea that fixing this issue would move the needle, so to speak, but reverse integration from packaging production to bale generation has not occurred.
And although, for example, WM acquired mechanical recycler Avangard Innovative (later known as Natura PCR, which shut down in fall 2025), Wallach said, “that was probably around capturing more value and going where the growth was. I don’t think those moves materially dampened the volatility.”
A plastic recycler back-integrating into bale generation is challenging, given the traditional prevalence of OCC in MRFs, representing more than half of inflow. “MRFs are paper-sorting machines with a plastic co-product and a metal co-product,” he said.
Positioning smaller converters for M&A success
For smaller recyclers, combining with a similar company is one path to scaling up the business, bringing more purchasing power, broader access to post-consumer bales and better access to premium packaging companies, Wallach said.
Goel noted that for smaller converters to be attractive in the M&A space, they need a strong, focused value proposition in a core end market, such as food or medical packaging; a clear growth trajectory, and a pipeline of products well positioned for upcoming EPR requirements – recyclable packaging, recycled content, alternative materials.
Wallach added that smaller converters may be well positioned with product offerings that align with emerging EPR frameworks that favor eco-modulation.
And while a merger or acquisition would have obvious implications for a small business owner, “I think the path to scale may be helpful,” Wallach said.
Gap between sustainability ambitions, economic reality
The biggest roadblock to growth in recycling isn’t capability, but rather a lack of willingness to share the risk, along with uncertain demand, Wallach said. These factors create conditions in which companies cannot justify building 20-30 year assets such as chemical recycling plants, he said.
That lack of appetite for risk-sharing discourages brand owners from committing to long-term supply contracts, making recycling markets naturally volatile, Wallach said.
In short, progress in adopting recycled content in packaging is constrained by the gap between what companies want to achieve and what makes economic sense, he said.
The appeal of sustainability features to consumers has dropped since 2020, as affordability became top of mind amid global inflation and decreased job security. “Consumers consistently cite recyclability and recycled content as key concerns, but near-term willingness to pay remains constrained for most segments,” Goel and his co-authors wrote in a separate report on the state of the packaging and paper industry.
“Macro uncertainty, cautious consumers, and structural changes in CPG behavior mean that volume growth can no longer be assumed for packaging and paper companies,” the authors wrote.
“External shocks” including tariffs and pricing volatility in the supply chain have added to the pricing pressure. A 2025 forecast from Smithers consultancy said that evolving tariffs could slow global packaging growth by up to 0.5% a year, as related costs rise for those segments that depend heavily on imports.
Brand owners simply pass along higher production costs to consumers, with growth from major brands stemming from pricing rather than sales volumes, the McKinsey report said, adding that inventory risk has shifted upstream, as orders from brand owners have become less predictable.
Of course, the passage of several state-level packaging EPR laws has increased regulatory pressure for CPGs, along with recycled-content mandates and labeling requirements.
These factors combined to slow growth in the packaging sector, which is at or below GDP. The existing supply-demand imbalance, as well as China’s evolving role in global packaging and paper, continue to pressure the industry, leading the authors to expect “tepid growth” over the next one to two years amid shifting global economic and geopolitical stability.
“Sustainability-led growth is concentrated in specific applications, rather than broadly distributed across portfolios,” the report authors wrote.
