Mid-sized processors under pressure to grow

By Catherine Kavanaugh
Staff Reporter

Published: April 25, 2014 2:08 pm ET
Updated: April 25, 2014 2:18 pm ET

Image By: Michael Marcotte/Plastics News Thomas Blaige, CEO of Blaige & Co., says small to mid-sized processors are under pressure.

Related to this story

Topics Mergers & Acquisitions

CHICAGO — Sandwiched between large suppliers and large customers, many plastics processors are feeling the squeeze and they ought to feel the need to push back some how to keep their positions, according to experts.

The immense pressure put on small and mid-size companies is going to intensify and those without a strategy will find it harder to compete, said investment banker Thomas Blaige, CEO of Blaige & Co.

“Essentially the independents are under attack,” Blaige told business executives and representatives at the Plastics News Financial Summit on April 2 in Chicago.

His firm’s data on almost 1,500 plastics processors indicates 76 percent of companies are under $50 million and 84 percent are under $100 million. A lot of family businesses and entrepreneurs make up the mix and they have some big decisions to make in an industry where the large and strong have staying power because of access to capital.

“This problem is for eight out of 10 plastics processors to determine where they go and what they do,” Blaige said, adding that he is issuing a call to action.

He said plastics processors can join forces, sell, stay independent, try to grow or even shrink by divesting a product line or division.

Strategic buyers are making acquisitions to broaden their product offerings and offset their slow and declining growth areas.

However, the private equity groups are the most active acquirers, especially in the injection molding, film and sheet, and blow molding segments. Sixty percent of the top 50 blow molders — 35 companies — merged or sold from 2001 to 2012.

In almost the same period, private equity capital has increased ten-fold to $500 billion as more firms form and individual investors, such as Baby Boomers, follow institutional investors.

Image By: Michael Marcotte/Plastics News Rick Weil, managing director of Mesirow Financial Inc.

“They’ve become more aggressive. They’ve become more specialized. They’ve become a force,” Rick Weil, managing director of Mesirow Financial Inc., said of private equity’s uninvested capital looking for a home.

Mid-size competitors also have become viable acquirers for small- and mid-size businesses. Some privately held processors with sales of $250 million to $750 million are aggressively looking for $50 million to $100 million companies to get to the $1 billion mark to compete against $2-billion-and-up companies.

However, reaching the $100 million mark also translates into staying power.

“Get to $100 million and you’re bigger than 84 percent of your peers,” Blaige said. “That’s a pretty strong position to have. You target $100 million when you’re at $20 million to $50 million and it’s a doable strategy.”

Weil said about 25 percent of mid-market deals have traded at valuation multiples north of 7.5 times earnings before taxes, depreciation and amortization (EBITDA), which is a common indicator of a company’s financial performance.

Mergers and acquisition activity shows that the plastics industry has been protected from gyrations and dips common in other markets.

“The industry is benefitting from the transition of non-plastic to plastic materials,” Blaige said. “The cyclical attributes of other industries are insulated somewhat in plastics and I think that translates to higher value and a premium for plastics companies if you can articulate that.”

In addition, initial public offerings (IPOs) are coming back after about a three-year hiatus. Blaige said that’s a sign that valuations are peaking in the industry.

Ply Gem Holdings Inc., a manufacturer of exterior building products, went public last May. Pipe maker Advanced Drainage Systems Inc. will be the next plastics giant to offer an IPO.

The industry is shaking out.

“You sort of have the haves and have nots,” Blaige said. “It’s an 80-20 rule. Ten percent of the people are sort of leading the charge. They’re consolidators. They’re ahead of the curve.”

The bottom 10 percent of companies are struggling with financial problems and may not be very profitable. The 80 percent in the middle should be thinking about their next step, Blaige said.

“You have time to do something,” he added.

But the clock is ticking.

“We’re in the fifth year of an upcycle,” Blaige said. “I’m not sure if it’s a seven- or 10-year cycle. We think it can change fairly soon.”


Comments

Mid-sized processors under pressure to grow

By Catherine Kavanaugh
Staff Reporter

Published: April 25, 2014 2:08 pm ET
Updated: April 25, 2014 2:18 pm ET

Post Your Comments


Back to story


More stories

Image

Investment firm buys Ontario cap molder

October 23, 2014 2:01 pm ET

A company whose varied interests include food and refrigerated transportation businesses is now moving into plastic caps.    More

Image

Report: Private equity companies may seek to buy Bayer MaterialScience

October 23, 2014 10:56 am ET

A number of investment groups are reported to be interested buying Bayer AG's MaterialScience operation, valued at around 10 billion euros ($12.6...    More

Image

Plastics News Now: Arburg's 3-D printing machine hitting the market

October 23, 2014 9:03 am ET

Chrysler is hiding design elements in parts, Amcor teams up with Method for a molding and filling plant and Arburg's Freeformer attracts attention at ...    More

Image

Sales, orders climbing for Wittmann Battenfeld

October 22, 2014 4:04 pm ET

Equipment maker Wittmann Battenfeld GmbH expects sales this year to increase 7 percent, to 295 million euros, as it said some key markets, including...    More

Image

Comar merging with Convergence Packaging

October 21, 2014 5:07 pm ET

A couple of plastic packaging companies owned by private investment firm Graham Partners are merging into a single entity.    More

Market Reports

Plastics Recycling Trends in North America

This report is a review and analysis of the North American Plastics Recycling Industry, including key trends and statistics based on 2013 performance. We examine market environment factors, regulatory issues, industry challenges, key drivers and emerging trends in post-consumer and post-industrial recycling.

Learn more

Plastics in Mexico - State of the Industry Report

This report analyzes the $20 million dollar plastics industry in Mexico including sales of machinery & equipment, resins and finished products.

Our analysts provide insight on business trends, foreign investment, top end markets and plastics processing activity. The report also provides important data on exports, production, employment and value of plastics products manufactured.

Learn more

Plastics Caps & Closures Market Report

The annual recap of top trends and future outlook for the plastics caps & closures market features interviews with industry thought leaders and Bill Wood’s economic forecast of trends in growing end markets. You will also gain insight on trends in caps design, materials, machinery, molds & tooling and reviews of mergers & acquisitions.

Learn more

Upcoming Plastics News Events

January 14, 2015 - January 14, 2015Plastics in Automotive

February 4, 2015 - February 6, 2015Plastics News Executive Forum 2015

June 2, 2015 - June 3, 2015Plastics Financial Summit - Chicago 2015

September 16, 2015 - September 18, 2015Plastics Caps & Closures - September 2015

More Events