CHICAGO - The business of buying and selling companies has slowed along with the rest of the economy, but despite a drop-off, the plastics industry continues to draw more interest than other sectors.
Plastics still is seen as having great potential, despite the current market conditions, said Thomas Blaige, managing director of Chicago-based investment bankers Lincoln Partners LLC.
While the overall mergers and acquisitions market fell by 20 percent between Oct. 31, 2000, and Oct. 31, 2001, deals in the plastics business declined only 11 percent, with 200 transactions announced during the year compared with 225 a year earlier.
``It's still a new industry on a historical basis, and there are a lot of advantages to being in it,'' Blaige said during the Plastics Industry Mergers and Acquisitions Forum, put on Dec. 6-7 in Chicago. ``There is going to continue to be activity across all of the segments.''
Private equity groups are continuing to invest in companies even as bank funds remain tight, he said, and once those private investors are in the plastics arena, they tend to stay.
Private equity money now backs about 24 percent of the deals taking place, up from less than 9 percent in 1997, said Jeff J. McKenzie, director with investment banking group Houlihan Lokey Howard & Zukin in Los Angeles.
But make no mistake. This is a buyer's market.
Values for holdings have dropped, and the bulk of the deals taking place involve smaller firms, McKenzie said.
Those companies still in an acquisition mode are in demand. Automotive supplier Collins & Aikman Corp., which completed two major plastics purchases in 2001 - that of injection molder Becker Group LLC and the December purchase of Textron Inc.'s automotive trim division - is on every deal maker's speed dial.
Each week, C&A's corporate office in Troy, Mich., receives three to five unsolicited faxes from companies seeking a buyer, said Jonathan Peisner, senior vice president communications, investor relations and business planning.
Some business owners seek buyers as part of a retirement plan, while others are eager for a new investor willing to pump new financial life into the operation.
Large corporations, meanwhile, are seeking to divest unneeded holdings and please the stock market. But many more potential sellers are entrepreneurs who are finding it difficult to compete. There are too many small to midsize molders that lack specialized skills needed to distinguish themselves.
``In injection molding, it's extremely fragmented,'' said Robert J. Bauman, vice president of Nexant Inc./Chem Systems, a White Plains, N.Y.-based consulting group. ``No matter how we look at it, no matter how we talk, there are way too many companies in the injection molding business. The recent economic downturn has really placed significant pressure on many. Many are essentially bankrupt.
``Some experts suggest, basically, that within a five-year period, you're really left with two basic types of injection molders. [There are] the mass, large injection molders with 100 or more machines who are really able to crank out low-cost products, then you'll have the specialty guys, who are really going to be focused on smaller volumes and specialty items that are not going to be made abroad.''
Companies lacking an overall focus or that have pre-existing problems are not going to get their full value.
The deals that are getting done are complex, Blaige said. Collins & Aikman's purchase of Textron's trim division, for example, includes cash, stock, lease payments and even a joint venture consideration for some European holdings.
The automotive molder is positioning itself for a business trend it foresees taking place over the next decade, Peisner said.
``We're not naive,'' he said. ``We're positioned to survive, but it's going to be bloody in the short term. There's going to be a lot of road kill.''
Companies that have a solid overall plan and are in good financial shape are in position to make some great buys now, Bauman said. Those who are not will pay the price for putting their firm on the auction block now, through greatly reduced prices for their holdings.
Three years ago, manufacturing business owners could expect to garner about 7.4 times their firms' earnings before income tax, depreciation and amortization - or EBITDA - when they sold their firms. Now that price is less than five times EBITDA, with further cuts for problem operations.
``There are opportunities out there today,'' Bauman said. ``There are actually companies that have money and can get funded. Balancing that is the risk, the fear of doing something in today's environment.
``Everybody wants to wait until they see that recovery happening, rather than seeing that it's on the horizon.''