Washington Penn Plastic Co. Inc., a major polypropylene compounder, is expanding its distribution business with a letter of intent to acquire Southern Polymer Inc. of Atlanta.
``We had been doing about 20 percent of our business in distribution,'' with the remainder in compounding, Paul Cusolito, Washington Penn executive vice president, said in an Aug. 12 telephone interview. ``Now we're more balanced.''
Southern distributes prime and off-grade PP and polyethylene throughout the country. Its 80/20 PE/PP mix is the opposite of Washington Penn's mix of the same products. Southern uses public warehousing and employs about 30 in sales and administration. Cusolito would not disclose the transaction price or Southern's annual sales. He expects the deal to close in September.
``Size is becoming paramount in the distribution business,'' Doug Holder, Southern Polymer chief executive officer, said in an Aug. 9 news release. ``Consequently, I believe [the deal] is in the best long-term interest of Southern Polymer and our employees.''
The acquisition is the first for Washington, Pa.-based Washington Penn since it acquired the compounding business of Jones Plastic and Engineering Co. of Frankfort, Ky., in mid-2000. Cusolito said Washington Penn will continue to look at opportunities in both compounding and distribution.
``Suppliers like to look at big customers,'' Cusolito said of the distribution market. ``But acquisitions are funny things. ... So much of it is based on timing.''
Washington Penn's distribution business, which has warehousing space in Washington, now will be operated by Southern Polymer management. Southern Polymer will continue to operate under its own name as a wholly owned subsidiary of Washington Penn.
Holder and Southern Polymer President Guerry Barton will remain with the company, and no staffing changes are planned, Cusolito said.
Holder and Barton founded Southern in 1991 along with Harry Watson, who also will remain with the firm. Holder and Watson had previous experience in resin distribution, while Barton had operated a film extrusion firm in Georgia for 30 years.
In a phone interview, Barton agreed with Holder's assessment of the distribution market.
``Resin companies want [distributors] to take large positions,'' Barton said. ``They want you to take 50 rail cars. You almost can't do business one rail car at a time.''
Though many compounders do some distribution work as a sideline, plastics industry consultant Margaret Baumann said she would not expect many compounders to follow Washington Penn's lead and acquire outside distributors.
Washington Penn's acquisition of Southern only makes sense because it gives Washington Penn access to Southern's PE-buying customer base, which could be useful if Washington Penn branches out into PE-based compounds in the future, said Baumann, who is president of G.H. Associates in Lebanon, N.J.
Cusolito confirmed that Washington Penn already compounds a small amount of high density PE and that Southern's PE business could bring ``additional synergies.''
Other regional or seminational distributors could find themselves in the same position as Southern, Baumann added.
``The way smaller distributors stay in business is by realizing they're geographically limited and that they can't go national without a big investment,'' she said. ``So they pay attention to the needs of their regional customers. But if they want to survive, they need to differentiate.''
Privately held Washington Penn does not disclose sales figures, but industry estimates place the firm's combined compounding and distribution sales at about $220 million before the Southern deal. About 80 percent of Washington Penn's pre-Southern sales came from compounding, according to estimates. That total ranks the firm among North America's 30 largest compounders, according to a recent Plastics News estimate.
Washington Penn is part of Washington, Pa.-based Audia Group. Audia also owns Uniform Color Co., a color concentrate maker in Holland, Mich., and holds a 50 percent interest in Epsilon Products Co., a PP maker in Marcus Hook, Pa. Epsilon is operated by Sunoco Chemicals, which owns the other half of the firm.