When rock musician Dave Mason hit the Top 40 in 1977 with "We Just Disagree" — the one that goes "There ain't no good guy ... there ain't no bad guy ..." — it's safe to say he wasn't thinking of plastics mergers and acquisitions deals.
But Mason's song is a good fit, since M&A pros contacted recently by Plastics News don't see eye-to-eye on the 2012 market, though most of them are optimistic regarding 2013.
(Actually, Mason does have a plastics connection. He helped to design guitars with polyurethane bodies in the early 2000s. Prior to his plastics work, Mason was a founding member of Traffic, joined Fleetwood Mac for a while and also played 12-string acoustic guitar on the Jimi Hendrix classic "All Along the Watchtower.")
Officials with P&M Corporate Finance LLC, Polymer Transaction Advisors Inc. and Deloitte Corporate Finance LLC each saw plastics deal volume grow 8-12 percent in 2012. But officials at Stout Risius Ross Inc. tracked a much larger gain at 26 percent, while their counterparts at Blaige & Co. LLC and Mesirow Financial Holdings Inc. saw 2012 as being flat to slightly down.
Since there are no official statistics for plastics M&As, there is no real way to settle the argument. But M&A pros contacted for this story did share their insights on the market and what the future may hold.
In the 8-12 percent growth camp, Southfield, Mich.-based P&M saw global plastics deals jump from 347 in 2011 to 381 in 2012. All of that growth came in the second half, when deal volume surged more than 30 percent vs. the second half of 2011.
That 381-deal total was the second highest in the 2006-12 period, trailing only the 393 total of 2010, when many distressed deals took place as the market moved out of a global recession.
Based on end markets, P&M saw deal volume growth of almost 40 percent in industrial end markets. On the other end of the spectrum, the number of construction end-market deals fell 33 percent.
In individual sectors, P&M reported a surge of more than 70 percent in blow molding, while film deals fell 9 percent. In product segments, the number of custom injection molding deals also shot up more than 70 percent, as building product deals tumbled 33 percent.
"The first half and second half [of 2012] were similar," said John Hart, plastics and packaging group director at P&M. "The market is pretty strong for sellers right now. There are a lot of strategic buyers and undeployed capital out there."
"There's still a supply/demand imbalance with more buyers than sellers," he added. "But as long as the economy continues to recover and we don't experience a recession, we see conditions being strong in 2013."
Tracking mostly North American deals, Newbury, Ohio-based PTA saw a 10.6 percent jump in plastics deals volume in 2012.
"The cost of borrowing is less, particularly if you're a private equity group," PTA owner Bill Ridenour said. "With cheaper financing, buyers can afford more than they could in the past."
At Deloitte's Chicago office, Managing Director Will Frame said 2012's 8-12 percent growth "was good, but people were more optimistic at the start of the year."
"Conditions were decent in 2012 after a couple of tough years," he said. "And we expect 2013 to be a solid, strong year, but without radical growth."
The hefty 26 percent increase reported by Chicago-based SRR for 2012 plastics M&As includes a jump of 47 percent in the number of plastic packaging deals. The firm also reported big jumps in deal involvement from financial buyers (up 52 percent) and private equity sellers (up 65 percent).
"When we look at the medical and packaging markets, there's higher quality because they're less cyclical," SRR Managing Director David Evatz said. "There's a flight to quality.
"And even if you look at cyclical, we were on the upswing of a cycle in 2012," he added. "We caught the automotive market on the upswing."
Conversely, Blaige's president, Thomas Blaige, and Mesirow analyst Louis Mitchell were less than excited about 2012 plastics M&A results.
"There were more broken deals in 2012 than in any other year in the last decade," Blaige said. "There was a lot of uncertainty because of the [U.S. presidential] election and some sellers got back in too soon.
"Those [sellers] that were hammered in the financial crisis tried to get back [into the market], but there weren't enough good financial results," Blaige added. "A lot of them only had one good year. So sellers pulled out of deals when they didn't get the price they wanted.
"There was a gulf between buy and sell expectations and, as a result, a lot of deals weren't completed."
"Our data shows that the [plastics M&A] market was flat, but that's better than other markets that were down last year," Mitchell said. "People were concerned about the fiscal cliff and tax issues.
"Things weren't as bad [in 2012] as 2009, but we still haven't recovered to pre-recession levels."
As if lack of a consensus of 2012 results weren't enough, M&A pros contacted for this story also had differing opinions on how changes in U.S. tax rates affected plastics M&As last year. The capital gains tax rate increased from 15 percent to 20 percent in most cases. Costs associated with the Affordable Health Care Act — often called Obamacare — also could increase businesses' operating costs by almost 4 percent, said PTA's Ridenour.
Some M&A pros believe that a rush to avoid these higher taxes led numerous deals to be consummated by the end of 2012.
"The capital gains tax was a huge factor in 2012," PTA's Ridenour said. "On a $40 million transaction, you're talking about an increase of $2 million in taxes. And Obamacare would add another $1.6 million."
Blaige cited two deals that his Chicago-based firm was involved with that happened because of the tax change: the Bicknell family's sale of can-liner maker Pitt Plastics Inc. to Inteplast Group, and ILC Dover's purchase of industrial packaging maker Grayling Industries Inc.
Chicago-based Mesirow advised Trinity Packaging Corp. on its purchase of flexible packaging maker Cello-Pack Corp. — a deal that Mesirow's Mitchell said was dictated by the tax change. But Mitchell added that "nobody was saying, 'Don't sell in 2013 because the tax environment is going to be bad.' "
Ridenour and Blaige each said the number of plastics businesses up for sale so far in the first half of 2013 might be lower than normal because of the number of deals that were closed in late 2012. But others said the tax change isn't as big a deal as it's made out to be.
"Taxes were a factor [in 2012], but not a gigantic one," said Terry Minnick, president of Molding Business Systems in Florence, Mass. "A good deal is still a good deal. If the rate had gone to 50 percent, people would have looked at [selling] more."
"Capital gains clearly was a driver to get deals done, but it wasn't a fundamental," added Hart at P&M.
SRR saw some activity from capital gains, but "it didn't drive a lot of business," according to Evatz. "You would have had to start much earlier in the year with a specific goal," he said.
Deloitte also saw some tax-driven activity and closed a couple of deals where taxes played a role, Frame said. But he added that taxes were "only one of a number of factors that influenced year-end deals."
Packaging remained a popular investment area for plastics M&As in 2012, as did higher-margin markets such as medical. The same might hold true for 2013.
"Packaging is less subject to fluctuations like industrial and automotive markets are," said Elliott Farkas, managing director at William Blair & Co. in Chicago.
At Mesirow, Mitchell also said his firm "saw growth in all different types of packaging in 2012."
"Flexible packaging and films are very robust, but the market is fragmented," Mitchell said. "Companies are still trying to take market share away from each other. Rigid packaging is a little more consolidated than flexible."
Evatz said the packaging sector "continues to see larger deals," and higher multiples are being paid for medical plastics businesses.
"There's always going to be interest in packaging and medical … more so in some type of niche or proprietary product, where you have only a few suppliers vs. 50-100 suppliers," Evatz said.
Frame identified personal care and health care as "the most resilient sectors" in the plastics market in the last few years, saying that they've benefited from improved business conditions and markets. The auto market also has shown continued improvement, he added.
Industrial deals also could continue to shine in 2013, according to Minnick at MBS. "There's a lot of uncertainty about the economy, but manufacturing in the U.S. is on the upswing," he said. "The small and midsized molders we're talking to feel business is pretty good right now."
Minnick added that specialized injection molders are more attractive to potential buyers.
"It's harder to sell an undifferentiated molder," he said.
P&M's Hart said the number of industrial market and custom molding deals could increase again in 2013 because of pent-up demand from both strategic and financial buyers.
Hart added that the big gain seen in blow molding deals in 2012 might have been caused by an unusually low number of such deals in 2011. The 2012 total was closer to the multiyear average, Hart said.
And in spite of improvement in the number of U.S. housing starts in the last couple of years, M&A pros aren't expecting a big increase in deals in that sector.
"We'll see some building and construction deals because people think that market has bottomed out, but not a huge number," said Evatz.
In the second half of 2012, Platinum Equity LLC's acquisition of rigid packaging maker Bway Corp. topped the plastics M&A market with a valuation of $1.2 billion.
Farkas at William Blair said he was somewhat surprised by the deal because Platinum "isn't known for paying fairly high multiples." He described the purchase as "a good example of a financial buyer being aggressive."
Onex Corp.'s $732 million acquisition of plastics machinery maker KraussMaffei group also drew interest.
Onex, a Toronto-based private equity firm, had owned a stake in machinery firm Husky Injection Molding Systems Ltd. until 2011. Shortly after selling that stake, Onex bought extrusion equipment supplier Davis-Standard LLC.
Onex had bought KraussMaffei from another private equity firm — Madison Capital.
"Madison Capital bought KraussMaffei before the financial crisis — and then [KraussMaffei] went into a tailspin," Blaige said. "But they came back strong. The moral of the story is to buy a quality business."
At PTA, Ridenour said machinery firms are attractive to private equity firms because of their cyclicality, adding that as the world emerges from the global recession, "people are starting to buy machinery again." Andrew Petryk, managing director and principal at Brown Gibbons Lang & Co. in Cleveland, added that equipment makers "are good indicators to what people expect the market to do."
"People aren't going to buy equipment if things aren't that rosy," he said.
P&M's Hart pointed out that firms looking to be market consolidators — like Hillenbrand Inc. — also are attracted to the plastics machinery market, even if they weren't previously involved. Since late 2010, Hillenbrand has acquired equipment firms Rotex Global LLC, K-Tron International Inc. and Coperion GmbH. Prior to those deals, Hillenbrand had manufacturing assets, but none in plastics machinery.
Another example of the attraction to plastics machinery, according to BGL's Petryk, is manufacturing firm Nordson Corp. buying screw and barrel maker Xaloy Superior Holdings Inc. and flat-die maker EDI Holdings Inc.
In the medical sector, private equity firm Berwind Inc.'s purchase of medical packaging maker Oliver Products Co. was named Deal of the Year by M&A Investor magazine for deals valued at between $250 million and $500 million. Oliver previously was owned by private equity firm Mason Wells. Mesirow Financial served as an adviser on the deal.
P&M's Hart also cited Mold-Rite Plastics LLC's recent purchases of Weatherchem Corp. and Stull Technologies Inc. as deals that "represent significant consolidation within the closures space." P&M served as adviser on both deals. Mold-Rite is owned by private equity firm Irving Place Capital.
Some acquirers struck multiple times in 2012. Private equity firm Arsenal Capital Partners led the way with six plastics-related deals, picking up firms with around $600 million in annual sales. Hedstrom Plastics wasn't far behind with four plastics deals in 2012 — three in sporting goods and one in trash bins.
And serial acquirer Engineered Plastic Components Inc. continued its ways in 2012, buying a plant from Oneida Molded Plastics LLC. That deal was EPC's 14th injection molding-related deal since 2007. In 2011, the firm made five such deals.
Valuations were on the upswing for many plastics-related deals in 2012, and M&A pros expect that trend to continue in 2013. PTA's multiple data for 2012 ranged from four times earnings before interest, taxes, depreciation and amortization for custom injection molders with annual sales of $10 million or less, all the way to six to 12 times earnings — or more — for makers of performance additives.
"We should still see mid- to high single digits in multiples," said Frame at Deloitte. "They're getting back to pre-recession levels."
"We saw modest improvement in multiples as  went on," William Blair's Farkas said. Multiples "were coming from a pretty good spot in 2011." Farkas and others said a rate of seven times earnings is the midrange for many recent plastics deals.
Plastics products deals tracked by BGL during 2012 had multiples ranging from 3.7 to 12.6 times earnings. In containers and packaging deals tracked by the firm, the range was 5.2-9x.
"There's been a steady increase in valuation multiples," said Petryk of Brown Gibbons Lang. "You don't have to sacrifice on price to get a deal done."
The big question faced eventually by all plastics business owners — especially entrepreneurs who have given most of their working lives to building up a company — is simply: Should I sell?
M&A pros contacted for this story said 2013 might be a good time to think about doing just that.
"If you're the founder of the company, and you're in your late 50s, you have to look at [selling] long and hard," said Petryk at BGL. "You have to ask yourself if you want to ride out another [business] cycle, because you know that industrial businesses are cyclical.
"At some point, there will be another downturn," he added. "So you have to have a view of what you want to do. It's not unreasonable to assume there will be another downturn in the next two to four years, and you want to sell before that downturn."
"In terms of there being a market for quality companies with good track records, 2013 should be very good," Blaige said. "Companies that missed a connection [in 2012] will reconnect."
At MBS, Minnick said his firm was contacted by four plastics companies wanting to test the market during a 10-day period in January. Those firms had annual sales ranging from $7 million to $35 million, he said.
According to Hart at P&M, 2013 will present a good market for plastics firms with "aging ownership, that might not have an option for a second or third generation."
"If that's the case, you have to ask if you want to make more investments," he said. "If you're a large plastic company with limited economic growth, you have to innovate or make acquisitions. If you're in a mature market, you have to go into acquisitions to spur growth."
At Deloitte, Frame said, "If it's the right time for you to sell, you're going to get more than fair valuation on your business in 2013. Strong market conditions aren't going to disappear overnight, but history tells us they don't last forever."
Overall, M&A pros expect 2013 to remain a sellers' market — and for interest in plastics from private equity firms to remain high. Most pros contacted for this story referred to the high amount of unspent funding still available in private equity markets.
At PTA, Ridenour highlighted another reason why plastics might benefit from money looking for a home in 2013: the lack of a better option.
"Plastics growth is good compared to some other businesses, especially in the U.S.," Ridenour said. "One of the things driving investments in plastics is asking if there are there alternate investments.
"There aren't a lot of alternate investments right now, so people are investing in equity businesses like plastics."