Buying «NovaPack» at 11 times earnings: €340 million for sustainable packaging
Private Equity
You're not paying for 25% growth — you're paying for one expiring contract.
In the scenario Over €60M not paid for momentary growth as if it were forever.
The protagonist & the context
The partner responsible for the deal, with a mandate to close within the quarter and an investment committee that has already approved the thesis in principle.
A mid-market private equity fund with a five-year horizon. NovaPack operates in recycled-material packaging — a segment in strong regulatory and commercial expansion. The deal is competitive: a second bidder is ready to accelerate.
Background
The sustainable packaging market has attracted significant capital over the past three years, driven by packaging regulations and pressure from large distributors on their supply chains. Sector companies trade at elevated multiples precisely because the market prices in structural growth. NovaPack reported a 25% CAGR over the past three fiscal years, with EBITDA margins at 18%. Quality of earnings, however, is rarely decomposed into its components: organic growth, acquisitions, one-off contracts. In a market where the green commodity risks being regulated like any other, margin differentiation is only as durable as the regulatory tailwind.
The dilemma
The fund has found a company with a compelling story in a trending sector, at a price that is high but not unsustainable — if growth holds. The problem is that the reported growth is an average: it does not say where it comes from, nor how long it will last. Strip out the main contract — a retailer accounting for over a third of revenues, expiring in 18 months — and adjust for a smaller competitor acquired the previous year, and recurring growth shrinks dramatically. Paying 11 times earnings on what is really 9% growth means buying an option on contract renewal, not a company.
Exhibits
Management-reported CAGR versus estimated recurring organic growth once the main contract and the acquisition are excluded (illustrative data).
Percentage weight of the top three clients on total revenues — the main client alone accounts for over a third of turnover; its contract expires in 18 months (illustrative data).
The contradictor's analysis
- That 25% is real, repeatable growth, not a stroke of luck.
- Margins hold if recycled raw material gets more expensive.
- In five years someone will buy it back at the same price.
Remove a single client and the story changes. Much of that 25% comes from one large contract, expiring in 18 months, plus a one-off acquisition. Stripped of these two factors, real growth is around 9%. And the «green» tailwind is already in the price: if a regulation turns recycled material into a commodity, margins compress just as you're paying 11 times.
- How much does it really grow without client number one?
- How much do the top three clients weigh on revenue, and when do the contracts expire?
- If raw material costs rise 20%, what happens to margins?
- If that contract isn't renewed, what are the earnings worth — and how many times are we paying them?
- Of the last three years' growth, how much is real and how much is just more acquisitions?
Provenance: confidential deal documents (data room) · quality-of-earnings review · comparable companies · red-team base.
Resolution & consequences
Methodological note
Composite teaching case. Figures and details are illustrative; it is not a client outcome or a performance claim. Built, in the method of the Harvard Business Review, from recurring decision patterns in the sector, merged and anonymized to protect confidentiality. The «provenance» notes describe the type of evidence the engine cites with traceability in production. No Δ-CSI score is shown: composite cases have no frozen, reproducible scorecard.