Expect continued consolidation

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This issue contains Plastics News’ annual blow molding ranking and special report. Recently, I gave a speech based on the ranking data at the Society of Plastics Engineers Annual Blow Molding Conference.

There have been significant changes in the sector, which isn’t a surprise. The blow molding market in North America has been affected, like all other sectors, by the U.S. economy and macro trends including globalization. All manufacturing sectors are coming off the Great Recession into a new season and a different economic cycle.

The North American blow molding market will continue consolidating.

Obviously, the Big Kahuna in 2011 is Reynolds Group for outbidding Silgan Holdings Inc. to buy Graham Packaging Co. Inc. And of course Graham itself had acquired Liquid Container LP. In a smaller deal in December, Alpha Packaging Inc. in St. Louis bought Cleveland-based Progressive Plastics Inc.

At PN, we rank companies based on sales. This year Silgan ranks at No. 9 with related 2010 sales of $588.6 million, Graham is No. 2 with $2.18 billion. The question remains for Silgan: Will it continue to acquire or will it be acquired? Silgan officials have been very straightforward in expressing their desire for acquisitions.

It’s also well-known how aggressive Berry Plastics Corp. is, and clearly Amcor Rigid Plastics and Plastipak Packaging Inc. fall into that category, too.

Rigid plastics does need more consolidation, as several experts have stated. Consolidated Container Co. LLC has been active; the company launched 2011 by purchasing the blow molding assets of West Coast Plastics Inc. Constar International LLC, since emerging from bankruptcy protection this year as a private company, intends to focus on specialized packaging and to make aquisitions, according to President and CEO Grant Beard.

In 1999, Plastics News’ ranking carried 194 companies; by 2010, that number had decreased to 145 firms (this year’s ranking carries 140). That decrease is due to many different factors, obviously, not just M&A activity.

But what is significant is that PN this year has tracked the most number of blow molders involved in mergers and acquisitions since 2003. Out of the 140 firms in our new ranking, six were involved in M&As in 2010-11. That’s the most activity seen in the market since 2003, when seven of 185 PN-ranked companies were involved in M&As, or about 3.8 percent.

In 2007 and 2008, there were no reported M&As, while 2005 and 2006 were tied at 2 percent of total ranked firms. In 2009’s ranking, 3 percent of ranked firms were involved in M&As; for 2010, only one firm was involved.

What’s also interesting is to look at what’s affecting M&As on macro levels in the plastics industry in general. The number of deals in general increased in the first half of 2011; the number of global deals in plastics and packaging increased about 5 percent in the first half, according to P&M Corporate Finance.

Financing also opened up a bit more. Companies were performing better. Most experts agreed that the quality of transactions increased and there was less distressed buying.

Private equity also was stronger during the first half of 2011 compared with the first half of 2010, so the number of deals involving private equity rose to 34 percent from 28 percent in 2010.

You can see a mix of strategic and private equity at play in the blow molders ranking this year. I’ve already cited the strategic deals. In a smaller transaction, Premium Plastics Solutions LLC was acquired by two private equity firms, CapitalWorks LLC and Little Mountain Industries Inc., at the end of 2010.

How will the horizon change over the next year? Will the deals be primarily strategic or will private equity beat out strategics? Or, will strategics use the backing of private equity to gain strength in the market?

It is anyone’s game and that is perhaps the most exciting prospect.