Plastics M&A veteran Thomas Blaige has called the peak of the current investment cycle.
Blaige — chairman and CEO of the Blaige & Co. financial firm in Chicago — pointed out that the six-year investment cycle ends this year, meaning that valuations for plastics businesses have peaked and could be trending down.
Historical data indicates that the average length of an M&A upcycle is six years, Blaige wrote in an Aug. 8 report. He also suggested that business owners considering a buyout, recapitalization or strategic sale should work with an advisor to take advantage of the current seller’s market.
Blaige’s firm has worked on dozens of plastics deals in the last 20 years. Most recently, Blaige in June advised MetPro Group — an Irish/German producer of specialty plastic film and paper packaging — on its sale to specialty films converter Transilwrap Co. Inc. of Franklin Park, Ill.
Earlier in 2014, Blaige recruited private equity firm Stonehenge Partners Inc. of Columbus, Ohio, as a minority investor in Jadcore Inc., a plastic recycler based in Terre Haute, Ind.
“If you look at the data, multiples are way up,” Blaige said in an Aug. 18 phone interview. “You’re seeing buyout deals and IPOs — and it was the opposite five years ago.”
“Some people are saying that because we’re coming out of a bad recession, that the upcycle will last longer, but we don’t think it will,” he added. “It’s a global market now and things can get choppy right away.”
Often, plastics business owners who are looking to sell wait until their business is at peak profitability. But Blaige said that approach can be a mistake if it ignores market timing.
“You need to look outside of your industry’s peak,” he said. “It’s better to sell at lower earnings if you can get a higher multiple.”
In the report, Blaige added that readily available financing and high earnings multiples could lead to a record number of transactions being completed in 2014.