ST. LOUIS - Independent, midsized plastics processing companies, especially injection molders with sales of $15 million to $100 million, are becoming hard to find, according to Debbie Douglas, managing director of the Douglas Group. Douglas' St. Louis firm, which specializes in plastic processors, sells businesses to companies and investors.
Midsized plastic processing companies were plentiful several years ago, according to Douglas, who said hungry investors have snapped up many of the most profitable and capable, leaving a dwindling pool of available companies.
Those that remain either have owners who operate them and are not willing to sell, or they fail to attract potential buyers for reasons such as insufficent market penetration or the lack of advanced technology.
``We used to have company owners coming to us to say they wanted to sell their company, then we would look for a buyer,'' Douglas said in an Aug. 22 interview at her St. Louis office.
``Today, the typical owner of a company with sales of $50 million to $60 million might get two to three calls a week from people who want to buy their companies,'' she said. The calls come in cold, often without the would-be buyer knowing the company's profitability and cost structure and, sometimes, what it makes or sells.
Investors have been attracted to plastic processing firms that have niche positions and deep penetration into specific markets, she said.
``The more compact a business is, the more it owns a specific niche in its field, the easier it is to sell it,'' Douglas said.
Today, she said, investors are particularly looking for firms involved in thermoset injection molding and blow molding-but only if the blow molding firm has ``blasted'' its market niche, wiping out its competitors.
The attraction investors see in plastics processing companies-especially those that are dominant their market niches-is that the businesses tend to be very secure, so they present long-term opportunities with adequate, if not spectacular, returns, Douglas said.
``With an injection molder or a blow molder, if they have a particular piece of business, they are seen as having less risk than other businesses,'' she said.
Molders with such businesses tend to keep them, and their customers tend to stick with them because of the high cost of moving tooling and the difficulty in finding new suppliers.
``You and I can't penetrate those market segments easily. We can't get started with $5 million in capital, the entry barriers - in technology and investments - are too high. So these businesses are not rapid turnover businesses,'' she said.
Douglas does not see the pool of desirable companies growing larger in the near future.
``Companies in this size range [$15 million to $100 million] typically sell for five to seven times their earnings before taxes, less any abnormal salaries and plus any real estate or unusual assets, such as licensing rights,'' she said.
``If a company has sales of $10 million to $15 million, they are at the threshold of this range, and if a company has sales of less than $5 million, all bets are off. Selling a company of that size really depends on the individual company and its market penetration,'' she said.
But Douglas sees firms in the $5 million to $15 million range as being stuck in a technological and financing eddy: They have difficulty growing beyond that size because they often do not have the technology that is required by customers, and usually cannot acquire financing to gain the technology because they are not big enough.
She also noted that because entrepreneurs who start companies often are not good planners, they hit a wall in growth when their company's sales reach $10 million to $15 million.