A mini-trend has emerged among plastics processors: a newfound popularity in filing for initial stock offerings.
Processors considering the step should be cautious. Keep in mind that the stock market is notoriously fickle, and that experts who advise you to take your company public may be more interested in a payday for themselves than in what's best for your company.
Wall Street still doesn't really understand processing. Most financial analysts couldn't explain the difference between injection molding and thermoforming, and the sad truth is they don't really care.
The reason processors are attractive right now is because some companies, particularly those in steady, growing markets like packaging, are popular with investors.
Yes, it's hard to believe, but there are still investors left in the world who didn't lose every penny in the tech stock/Internet stock/Enron stock market meltdown of 2000-01. And they've learned their lesson (wink, wink). Now they don't want flashy, sky-high, immediate returns, just a dependable place to stash their cash for a few years where they won't lose their shirts. Hello plastics!
Last month two companies announced plans for plastics-related IPOs.
On May 23, Philadelphia-based Crown Cork & Seal Co. Inc. announced plans for an IPO to spin off Constar International Inc. A day later, York, Pa.-based Graham Packaging Co. LP announced plans for its own offering.
The fact that those two companies are involved speaks volumes about Wall Street's constantly changing appetite for plastics processing companies.
Industry old-timers will recall that Constar was a publicly traded company just 10 years ago, before it was purchased by metal packaging kingpin Crown Cork.
Graham's IPO history is even more recent. The company filed for a stock offering in July 2000 but pulled back a few months later. The company blamed poor stock market conditions.
Although both companies serve the growing PET bottle market, both have been hamstrung in recent years by heavy debt loads. Crown Cork also has had to deal with asbestos-related lawsuits, which have kept investors a bit too nervous about the company's future.
The proposed IPOs will inject some much-needed cash into both companies.
Of course this whole exercise could be a waste of time. As Graham found in 2000, a company can file for an IPO, then delay or drop the plan at the last minute if the stock market takes a dive. Timing is everything in this game.
But if Graham and Crown Cork have timed the market correctly, the IPOs will pay off big-time. If so, you'll be sure to see plenty of financial advisers urging others to take the same path. But remember: For many, that me-too strategy may be expensive and unnecessary. Especially when investors decide to go back to growth stocks, or tech stocks, or utilities, or whatever other flavor-of-the-month strikes the fancy of the Wall Street herd.