Target Information

Sky Island Capital, based in Dallas, Texas, announced on July 18, 2024, that it has acquired a majority stake in Pacific Paper Tube Inc. This investment occurs alongside the original owners of the Company. Established in 1989 and situated in Stockton, California, Pacific Paper Tube is a prominent independent manufacturer of sustainable paper tubes and cores. The Company caters to an extensive range of customers across diverse markets, including industrial, construction, and packaging sectors. With manufacturing facilities in California, Washington, Oregon, and Nevada, Pacific Paper Tube holds a competitive position as one of the top independent paper core and tube manufacturers on the West Coast.

Throughout its 35+ years of operation, Pacific Paper Tube has cultivated strong relationships with blue-chip clients who utilize its products in various applications, such as transportation of materials (plastics, paper, metals, textiles, and roofing), formation of concrete architectural columns, and packaging of consumer goods. The Company’s commitment to sustainability is evident in its use of recycled paperboard for all its products, which are customized to meet specific client needs. Pacific Paper Tube's distribution network extends across the United States and into Canada, distributing directly to end users and through various distributors.

Industry Overview

The market for sustainable packaging solutions is experiencing significant growth, driven by increasing environmental awareness and the demand for eco-friendly products. In the United States, the paper products sector is projected to rise, bolstered by regulatory incentives favoring sustainable practices. This trend has positioned companies like Pacific Paper Tube favorably within the market, as they fulfill the dual need for sustainable materials while providing functional products across various sectors.

California, the state where Pacific Paper Tube is headquartered, is known for its progressive stance on sustainability and environmental regulations. Businesses within this state are often at the forefront of implementing green technologies and practices, making it an ideal location for Pacific Paper Tube's operations. The state’s strong manufacturing base and robust consumer demand for sustainable packaging solutions further contribute to the Company's growth potential.

The construction industry, an integral market for Pacific Paper Tube, is also witnessing a shift towards sustainable materials. As regulations tighten and builders seek eco-friendly alternatives, Pacific Paper Tube is well-positioned to be a preferred supplier of paper products that meet these new standards, thus driving demand for its offerings.

Moreover, as e-commerce continues to flourish, there is a noted increase in the need for sustainable packaging solutions, creating new opportunities for growth. This shift in consumer behavior positions Pacific Paper Tube to not only sustain its existing market presence but also expand into new markets with its innovative and environmentally conscious product offerings.

Rationale Behind the Deal

The rationale behind Sky Island Capital's majority investment in Pacific Paper Tube lies in the Company's strong market position and significant growth potential. By partnering with the Wallace family, Sky Island Capital aims to leverage its operational expertise to propel Pacific Paper Tube into its next phase of expansion. The investment is expected to support the Company’s strategic initiatives, enhancing production capabilities while potentially exploring new market opportunities in sustainable packaging.

Additionally, Sky Island's commitment to supporting family-owned businesses aligns well with Pacific Paper Tube’s values, ensuring a continuity of leadership and a shared vision for future growth. This collaborative approach is anticipated to facilitate innovation and operational efficiencies that will drive the Company’s success.

Investor Information

Sky Island Capital specializes in lower middle market private equity investments within North American manufacturing companies that display considerable transformational potential. By utilizing its substantial operational experience, Sky Island supports senior management teams in numerous aspects of value creation, ranging from strategic partnership to add-on acquisitions. The firm possesses a proven track record of managing transactions with complex dynamics, particularly in family-owned enterprises, management buyouts, corporate carve-outs, and other unique situations.

The firm’s focus on companies like Pacific Paper Tube allows it to apply its financial acumen and industry knowledge to enhance operational effectiveness and drive substantial growth. Through investment in Pacific Paper Tube, Sky Island aims to strengthen its portfolio while championing sustainable manufacturing practices.

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This investment in Pacific Paper Tube appears to be a strategic move on Sky Island Capital's part, signaling confidence in the Company’s future trajectory and the sustainable manufacturing market at large. The alignment of both the Company’s mission and Sky Island’s operational strengths suggests that there could be significant value creation in the future. With increasing demand for eco-friendly packaging, Pacific Paper Tube is well-positioned to capitalize on current market trends.

The potential for operational improvements, combined with an established customer base and reputation for quality, strengthens the likelihood of a successful outcome from this investment. Moreover, the commitment of both Sky Island and the Wallace family to fostering innovation and sustainability within the Company aligns with the growing consumer preference for responsible products.

However, it will be crucial for Sky Island Capital to provide ongoing support as Pacific Paper Tube navigates the complexities of expanding its market presence and sustaining growth amid increasing competition. Ensuring that the Company maintains its commitment to quality while scaling operations will be a key factor in determining the long-term success of this investment.

Overall, this partnership presents an exciting opportunity for both parties, with the potential for substantial advancements in sustainable manufacturing and market reach of Pacific Paper Tube under the guidance of Sky Island Capital.

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