Industry consolidation is narrowing the choices for thermoformers buying custom extruded sheet and roll stock, but the competitive environment may provide better products at lower prices.
``Smaller, geographically focused extruders are either moving into niche, value-added markets or find themselves being purchased by the growing national franchises,'' said Peter J. Schmitt, a consultant with Montesino Associates in Wilmington, Del.
Can consolidation continue? The market, which has matured within a few years, has combined familiar names and, according to one analyst, eventually could raise restraint-of-trade questions. Intense competition, high volume and low margins characterize the business.
A triad of competitors — Spartech Plastics, Primex Plastics Corp. and Uniroyal Technology Corp. — each can supply thermoformers with a range of materials for sheet products. In particular, Spartech and Primex overlap often in customer base, product and geography.
Spartech, Primex and Uniroyal are, respectively, No. 1 with sheet sales of $357.9 million, No. 3 with $202.8 million and No. 10 with $115.1 million in Plastics News' 1997 ranking of the top sheet manufacturers in North America.
In contrast to the three firms' broad offerings, other top sheet makers specialize. AtoHaas Americas Inc. and Cyro Industries, for example, focus on acrylic; GE Plastics' Structured Products Division, polycarbonate; and GSE Lining Technology Inc., geomembranes, generally polypropylene.
Looking at the big picture, Spartech's Bradley B. Buechler estimated the current size of the North American custom extruded sheet and roll stock market at $1.1 billion, of which $600 million is heavy gauge and $500 million is thin gauge.
The noncustom market, including single-material and captive producers, is about $2.4 billion, Buechler estimated. About $900 million is heavy gauge and $1.5 billion thin gauge, he said. Buechler is Spartech's president and chief executive officer.
Brian Langenberg, an analyst in the Chicago office of Credit Suisse First Boston Corp., estimated that, including its newest acquisition, Spartech has about 40 percent of the custom extruded sheet market; Primex, 17 percent; Uniroyal, 10 percent; and DSM NV's Sheffield Plastics Inc. of Sheffield, Mass., 5 percent.
``Returns are good, and the market should continue to do well,'' Langenberg said. ``Sheet can continue as a substitution for more traditional materials — wood, glass, metal — over time.''
The trend to merge may persist.
``When an industry starts consolidating, the smaller ones get squeezed and can't keep up,'' said Gary Prestopino, director of research for Chicago-based Mesirow Financial Inc. Size translates into better buying power and the ability to spread costs over a larger sales base.
There is ``room for more consolidation in our eyes'' among ``numerous entities out there'' in custom extruded sheet, he said.
Prestopino speculated that for Spartech, however, growth may come from what could be ``richer'' opportunities within its other niche markets, for color compounding and molded products.
``Increasingly, people look for partnering situations,'' said Allan Cohen, managing director of First Analysis Securities Corp., a Chicago investment banking firm. ``The big guys get bigger,'' and users look for ``a supplier who can supply more than one of their facilities,'' he said.
That trend puts pressure for consolidation on raw material suppliers, Cohen added, particularly in sheet extrusion.
Spartech's strategy is ``to take a regional business, which we believe sheet extrusion really is, and layer on top of that the benefits of having a national presence for customers with operations around the country,'' Buechler said in a telephone interview.
Most Spartech customers operate one or two plants. About 10 have multiple plants in distant regions.
``We try to maintain plants with full-service capabilities close to our customers,'' Buechler said, within a 500-mile radius if possible.
Since 1993, Spartech has acquired six intermediate plastic processors, including Echlin Inc.'s Preferred Plastic Sheet Division on Aug. 22 for $65 million. Preferred of Greenville, Ohio, supplies several types of extruded sheet products.
Spartech acquired Hamelin Group Inc. and Portage Industries Corp. in 1996, two Pawnee Industries Inc. divisions and Products Components Inc. assets in 1994, and Penda Corp.'s custom sheet business in 1993. Buechler sees the consolidation trend as ``the first generation change'' of some early plastics processing entrepreneurs.
Clayton, Mo.-based Spartech evaluates how each potential acquisition would complement the company's capabilities, production efficiencies and management depth. ``We keep almost all the people in place,'' Buechler said. ``We don't have a long bench at our corporate office to make changes.''
The company was founded in 1968, operated as a conglomerate until 1981 and shifted by 1984 toward a range of debt-financed plastics acquisitions. Since becoming CEO in 1991, Buechler has focused on equity-based growth into extruded sheet and color compounds and, most recently, molded products.
With the acquisitions, Spartech projects 1997 annual sales of $440 million in extruded sheet and roll stock, $90 million in color and specialty compounds and $45 million in molded products. Throughput should total about 700 million pounds for virgin resins and 50 million pounds for stabilizers and plasticizers.
Buechler estimated Spartech's heavy-gauge products account for 65-70 percent of the company's extruded sheet volume, with the balance in thin gauge. Seventeen of the company's 26 plants extrude rigid custom plastic sheet and roll stock.
Primex is a principal competitor.
``Custom sheet is a maturing industry,'' said Jim Armor, national marketing manager in Huntington Beach, Calif., for Primex. ``The day of the smaller custom sheet extruder is fast waning. A small regional house will have a tough time competing. They don't have all the product lines we have or the capacities or volume.''
Custom sheet is now ``a volume commodity business vs. the mom-and-pop specialty business,'' Armor said. ``Little operations do not have the wherewithal nationwide or globally.''
``Big, well-managed companies will continue to grow, and others will merge or sell,'' he said. ``Now, the custom sheet business is a vastly different market.''
Primex extrudes sheet in Garfield, N.J.; Richmond, Ind.; Oakwood, Ga.; and Mesquite, Nev.; and, effective Oct. 1, in Corsicana, Texas, bringing the operation to 75 lines and 300 million pounds of output.
``Primex is profitable, in a growth mode and will continue to expand,'' Armor said. Richmond-based Primex had 1996 sheet sales of $202.8 million out of a company total of $230.8 million.
Primex, which aims to add both locations and capacity, operates its own trucks rather than relying on common carriers.
A May merger with Pace Industries Inc. of Reedsburg, Wis., brings ``a fine styrene sheet producer'' and annual sales of $30 million into the Primex family. ``We complement them very well,'' Armor said.
Pace will retain its name as a unit of Primex.
Primex is a subsidiary of privately held ICC Industries Inc. of New York. ICC had 1996 sales of $1.2 billion.
John Zappala, vice president and general manager of Royalite, Uniroyal's largest division, envisions industry consolidation continuing. He said high end-user demands limit long-haul market opportunities and, possibly, survival for some smaller extrusion operations.
Major firms demand high quality, timely delivery, consistent performance and continuing product development, he said.
``Some of the less-resourceful extruders will simply not be able to cut it.''
His operation continues to look at ``a number of potential acquisitions'' but ``not just in the U.S.,'' Zappala said. Those that ``measure up to [Royalite's] margin and income-earning power'' and play in niche or specialty markets receive serious consideration. ``We are a specialty house selling value-added products.''
Royalite custom-compounds about 70 percent of its product line, according to Zappala. The division makes specialty and general-purpose thermoplastic sheet, injection molding resins, color concentrates and, on five lines, extruded profiles. ``We develop our own formulations'' where ``many others buy off the shelf,'' he said.
The firm's specialty resins allow an end user to have molded parts that complement Royalite sheet extrusion products.
``In the past, the injection molded parts were of different materials,'' Zappala said. ``Now, an end user's finished assembly can have thermoformed sheet, extruded profiles and molded parts [of material] with the same properties, same color [and] same coefficient of expansion.''
Royalite recently introduced a 65/65 PVC-acrylic for aircraft interiors and a polycarbonate-ABS sheet alloy for high-heat housings in telecommunication, medical and industrial markets.
Last year, Royalite acquired a Farrel continuous mixer to expand color compounding capability and reduce lead times on precolored products.
South Bend, Ind.-based Royalite employs about 350 and occupies about 330,000 square feet in Warsaw, Ind.; Redlands, Calif.; and Rome, Ga.
Uniroyal's high-performance plastics segment, which includes Royalite and the cell-cast acrylic-sheet Polycast division, had fiscal 1996 sales of $115.1 million out of the company's $209.3 million. Uniroyal Technology is based in Sarasota, Fla.
Industry executive John Witt estimated annual sales for the custom sheet industry at $1 billion to $1.25 billion, excluding calendered PVC, with thin-gauge production accounting for just 25-35 percent—a smaller percentage than Buechler cited.
While custom sheet is ``really not big'' in comparison with many other industries, it is ``a very important part of the U.S. plastics industry,'' said Witt, president and chief executive officer of Witt Plastics Inc.
Witt dismissed concerns that Spartech or other major players might crowd smaller producers.
``Spartech is technologically advanced, public, a quality operation and committed to profitability,'' Witt observed. The combination perhaps makes Spartech ``a little less likely to `buy' market share.''
Niche player Witt Plastics specializes in sheet and roll stock for thin-gauge disposables and packaging materials for graphic arts, medical and electronics users. In addition to polystyrene products, Witt makes thin-gauge clarified and mineral-filled PP formulations.
Witt Plastics recorded 1996 sales of $25 million and operates facilities in Greenville, Ohio, and Lakeland, Fla.
Consolidation within the custom sheet industry enhances thermoformers' ability to take advantage of rapid improvements in machinery and materials, Arthur Buckel, a San Diego consultant, said in an interview.
Buckel consults on ``practical thermoforming'' in the Americas, Europe and, increasingly, Asia. He is affiliated with McConnell Co. Inc. in Fort Worth, Texas, ``educating thermoformers to specific materials for specific jobs [and] which resin gives what you need.''
Extruders have ``a better understanding of what a thermoformer needs'' in comparison to 25 years ago, Buckel said, and the larger companies have ``more money to spend on equipment and technology.'' Formerly, extruders lacked additives and had problems maintaining consistent quality that thermoformers require.
More is needed. Resin suppliers should spend more time with thermoformers, he said. ``That would help to identify thermoformer needs in resin properties.''
Regarding the two fastest-growing assimilators, ``I don't know of any capacity Spartech and Primex have retired [but they] did get rid of some overhead and made it more economical to product sheet,'' Buckel said.
``They have created a competitive situation.''