CHICAGO - Attention, shoppers: There's a blue-light special in aisle five for injection molding companies. You can buy one right now at low, low prices.
But getting the financing for that plum acquisition could be a bigger strain on the budget than navigating the sales shelves, said several consultants at the 2001 Injection Molding Financial Symposium, hosted by PenResearch Group Inc.
``About two-thirds of companies said that the cost of an acquisition is going to drop,'' said PenResearch managing director Brian Tartell in a May 17 discussion of the research group's annual financial benchmarking study. ``But we're finding that banks are a little squeezed about lending money.''
Tartell based his comments on a company's earnings before deducting interest, bonus, taxes, depreciation and amortization, or EBIBTDA.
Median pricing multiples for molding companies are expected to drop by about 1 times EBIBTDA during the next 12 months, Tartell said at the Chicago symposium. And while that is good news for acquisition-hungry companies, the scarcity of bank debt is the primary cause of that plunge, he said.
That Catch-22 twist will not keep some large companies from buying on the open market. About half of all molders with annual sales of $75 million or more plan to purchase another company this year, Tartell said.
Yet, that number is down from about 75 percent of those companies that made acquisitions in 2000.
The results from Wyomissing, Pa.-based PenResearch are based on survey findings from 42 North American injection molders, spanning an equal number of small companies and larger firms. Those companies in the middle range, with annual sales between $10 million and $75 million, accounted for about 42 percent of the surveyed molders.
Companies that bought other molders in 2000 paid a median price of 5.75 times EBIBTDA, the results showed. Companies most apt to make an acquisition were large molders. Midsize and smaller molders planned to grow internally, Tartell said.
``That's not a great surprise,'' he said. ``The [smaller companies] would rather be lighter and stronger. It's not that much different than it was 25 years ago.''
For larger companies, conventional bank loans might not be the way to fund a purchase, said Jeffrey Kolke, marketing manager for plastics and chemicals with GE Capital Commercial Finance, based in Stamford, Conn. Kolke, speaking at the same symposium, said molders' credit ratings have dropped.
Lenders are more apt to loan funds to companies that have better than a BB+ credit rating. Yet, most molders are in that ratings area or lower, he said.
``The trend of lenders is to go left and look at higher credit ratings,'' Kolke said. ``A molder's credit rating has to get better for money to go out.''
Meanwhile, the average debt for molding companies has plummeted, while the price of loans has risen substantially since 1998, Kolke said.
As an alternative, some companies have turned to asset-based financing, setting up a revolving credit line to convert assets to cash, he said.
The tightening market - and softening economy - has not scared off all comers. Injection molder Applied Tech Products of Radnor, Pa., will continue to search for acquisitions this year, said Carlton Harris Jr., director of corporate development.
The company, which recorded about $210 million in sales last year, will follow some rigid maxims: A candidate has to be a good fit with existing products, have a quality work force and have low overhead, Harris said.
``We have to take a selective strategy,'' Harris said. ``If a company doesn't fit our culture or provides limited value to our current line of assets, we wouldn't be interested.''
And while banks remain hesitant to lend money, that should not frighten all potential buyers, especially those with healthy balance sheets, Kolke said.
``The bank still loves good earnings,'' he said.