This is the first of a series of monthly commentaries on industry merger-and-acquisition trends and advice. The author, Jeff Chung, is director of advisory services with U.S. Business Exchange Inc. (www.usbx.com) of Santa Monica, Calif.
The plastics industry has seen significant merger and acquisition activity during the past few years, driven by original equipment manufacturers' outsourcing and continued globalization.
In order to focus on marketing their products and reducing costs, OEMs are now outsourcing manufacturing functions that they once provided in-house. In addition, OEMs are looking for vendors to do more and provide more capacity. "One-stop-shop" is the buzzword to obtain "preferred" and "qualified" vendor status.
This has forced plastics processors to increase capacity and provide a broader array of services. While organic growth is always a possibility, the quickest and most efficient method of achieving growth and diversification is to acquire other companies.
Globalization of OEMs also has spurred increased M&A activity. In an effort to remain competitive with foreign suppliers, domestic vendors are following their OEM customers and establishing international points of presence. As a result, U.S. companies are acquiring foreign companies to expand their market presence. Conversely, many foreign companies are buying U.S. companies to serve the U.S. market.
As consolidation continues, owners are constantly solicited to sell their companies. U.S. Business Exchange Inc. advises owners to take the following steps prior to negotiating with a buyer:
* Carefully consider the implications of selling your business. Many parties will be affected by the sale, including employees, shareholders, family and customers.
* Conduct a professional valuation of the company. This step not only will assist you in determining the value of your business, but it also will help you to maximize value during the negotiation process. While a business may not end up changing hands for exactly the price estimated by such an expert, having a professional valuation lends validity to the selling company.
* Engage the services of a professional M&A adviser. A first-rate adviser will know the universe of potential industry buyers and will create a competitive auction process to maximize purchase price. An adviser also can be instrumental in marketing the business, preparing documents for due diligence, negotiating with buyers, structuring the deal, and ultimately selling the company.
Although M&A activity in the plastics industry has slowed this year, primarily due to a more stringent financing market, USBX expects consolidation in the industry to continue as the underlying trends of the industry remain strong.