Has bigger been better in the plastics mega-deals of the last 25 years?
While researching a feature on mergers and acquisitions for Plastics News’ upcoming 25th anniversary issue, a list emerged of 10 such deals — mainly ones where companies tried to roll up other companies into a plastics giant, or where such a consolidator was itself acquired by another firm.
Looking over this list, you could say the results have been mixed at best. Some clearly crashed and burned, while the jury is still out on others. Let’s take a look at them in alphabetical order (so as to avoid the appearance of bias):
• Atlantis Plastics Inc.: The publicly held packaging firm grew through acquisitions between 1986 and 1994 to a peak of 15 plants, almost 1,400 employees and annual sales of more than $400 million. A crowded film market led to financial losses in 2006 and 2007 before a bankruptcy filing in 2008, which listed assets of less than $210 million but debts of more than $250 million.
Atlanta-based Atlantis eventually sold its films unit to AEP Industries Inc. and its molded products unit to private equity firm Monomoy Capital Partners LP. AEP soon closed two Atlantis film plants, while Monomoy merged the molding operations with Legget & Platt Inc. to form Fortis Plastics LLC, which lasted only three years before closing its doors for good in 2011.
• Berry Plastics Group Inc.: A true plastics colossus, Evansville, Ind.-based Berry in 1997 was a regional packaging firm with sales of less than $60 million. Fueled by private equity investors, Berry has made 30 acquisitions since then, posting sales of more than $4.7 billion in 2013. It made 10 of those between 2007 and 2012. Between late 2011 and late 2012, the firm looked at 115 potential deals. Berry now ranks as North America’s third-largest injection molder, fifth-largest thermoformer and eighth-largest film and sheet maker, according to recent Plastics News industry rankings.
• Engineered Plastic Components Inc.: EPC — an automotive injection molder and blow molder based in Grinnell, Iowa — has made 16 acquisitions since its founding in 1994. Led by owner and CEO Reza Kargarzadeh, the firm made five deals in 2011 alone. A company executive said at a Plastics News event in 2012 that EPC has benefited from its industry knowledge and from “not having to go to a board of directors” to get deals approved. The firm now has annual sales of more than $250 million and ranks in the Top 50 of both injection molders and blow molders in the region.
• Graham Group: Taking stock of the plastics units of Newtown Square, Pa.-based Graham can be challenging, since the firm is involved in both blow molded packaging and machinery, as well as being an investor in publicly held Berry. Graham has been involved in more than 60 deals since 1988 — both buying and selling. Its current assets include machinery firm Graham Engineering and packaging firms Convergence Packaging and Comar — although, ironically, it no longer owns packaging firm Graham Partners.
In 2011, Reynolds Group Holdings Ltd. purchased Graham Packaging from Graham Group for $4.5 billion. Graham Packaging is North America’s second-largest blow molder with annual sales of more than $2.6 billion. Graham Group joined with private equity firm Apollo Management to buy Berry in 2006, and then took Berry public in late 2013. Graham Group and Apollo retain a majority stake in Berry, which had a market capitalization value of almost $3 billion as of Sept. 17.
• M.A. Hanna Co.: This might be the most intriguing plastics story of the last 30 years. Starting in the mid-1980s, Hanna — a Cleveland mining firm that traced its history to the 1840s — began to transition into plastics, and by the mid-90s had made more than two dozen acquisitions in plastics and rubber compounding as well as resin distribution. But integration problems already were showing up by 2000 when Hanna merged with Geon Co., another Cleveland-area firm that ranked as North America’s largest PVC compounder, to form PolyOne Corp. (Geon itself had grown via several acquisitions.)
Ongoing problems — as well as an industrial slowdown — then caused PolyOne to lose almost $300 million and almost 30 percent of its annual sales of more than $3 billion in its first five years of operation. The firm also closed more than 20 plants and cut more than 1,300 jobs in that stretch. The recession of 2007-08 sent PolyOne down even further before new CEO Stephen Newlin and his management led the company on a remarkable comeback.
• Pliant Corp.: The former Huntsman Packaging Corp. business was bought by financial giant JPMorgan & Co. in 2000 and set up shop in Schaumburg, Ill. But, like Atlantis, it struggled in a crowded film market, filing for bankruptcy first in 2006 and then for a final time in 2009, when it listed assets of less than $700 million and debt of more than $1 billion. At that time, Pliant had annual sales of $1.1 billion, 18 plants and almost 3,000 employees. It was bought in 2009 by — you guessed it — Berry. Private equity firm Apollo had ownership stakes in both firms.
• Royal Group Technologies Ltd.: This one’s really all about timing. Materials maker Georgia Gulf — a leading PVC resin maker and compounder — paid $1.6 billion in 2006 for PVC building products maker Royal just before the North American housing sector took a precipitous swan dive, swooning from more than 2 million new units per year to less than 500,000. Almost every sector of Woodbridge, Ontario-based Royal — which had been built from the ground up by Italian immigrant Vic DeZen — was exposed to the housing market. The result wasn’t pretty. Market conditions soon led Atlanta-based Georgia Gulf to sell off or close a slew of Royal businesses and plants as well as close some of its own PVC operations. Georgia Gulf never really recovered from the Royal deal. The firm lost $250 million in 2008 alone before recovering enough that it could merge with the commodity chemicals business of PPG Industries in 2012 to form Axiall Corp.
• Sigma Plastics Group: Things are going well so far for Lyndhurst, N.J.-based Sigma, which has made six packaging-related acquisitions since 2009, most recently buying most of the assets of Excelsior Packaging Group in February. Three of those deals took place in 2009. Sigma ranks as North America’s second-largest film and sheet maker, with sales of $2.65 billion in 2013.
• Spartech Corp.: Another case of too much, too soon. Clayton, Mo.-based Spartech became a leading plastic sheet maker and a Top 30 maker of compounds and concentrates by making 14 acquisitions between 1993 and 2000. But integration problems arose, leading to losses of almost $300 million between 2006 and 2008. Spartech also closed a dozen plants in North America and Europe and eliminated more than 700 jobs between early 2008 and late 2010. PolyOne then snapped up the struggling firm in late 2012 for less than $400 million.
Some market veterans saw irony in that move, since PolyOne’s early post-Hanna days were filled with the same type of problems that troubled Spartech. PolyOne soon closed six Spartech plants in mid-2012, but now appears to have the business heading in the right direction.
• TriEnda LLC: An odd type of deal ended badly for this Portage, Wis.-based thermoformer, which at its peak had sales of more than $100 million. Thermoforming veteran Curt Zamec bought the TriEnda business in late 2007 from Wilbert Inc., the Broadview Ill.-based thermoformer where he had been president and CEO since 1999. Shortly after buying TriEnda, Zamec sold a 36 percent stake in the firm to Neil and Don Kruschke, brothers who owned Ohio-based plastics machinery firms and who saw an opportunity in plastic pallets with TriEnda.
In early 2009, TriEnda opened a new, $20 million plant in Marion, Ind., but things soon went south. Dutch container firm SAS soon was making up a staggering 85 percent of TriEnda’s sales, which severely damaged TriEnda when SAS cancelled new orders and refused to pay more than $10 million in outstanding invoices. TriEnda — which as recently as 2010 ranked as North America’s 15th-largest thermoformer — eventually sold its assets to Spara LLC of Lexington, Ky., amid a flurry of lawsuits between Zamec and the Kruschke brothers. (Neil Kruschke passed away in 2011.)
So what are we to make of these tales of financial ecstasy and heartache in the plastics world? Well, it’s clear that finding the right fit among many moving parts is essential. Assessing the market you’re in with a clear and unbiased eye also is a must. Could Georgia Gulf have known that the housing market was going to tank before it bought Royal? Maybe not, but even at that time market watchers were cautioning that the red-hot housing market couldn’t stay that way forever.
On the other hand, you could argue that investors in Atlantis and Pliant more easily could have seen the crowded condition of the North American plastic film market, which even today has an operating rate of no more than 70 percent.
Let’s hope that 25 years from now, investors in big plastics deals are drinking champagne toasts instead of crying in their beers.