CHICAGO (Sept. 8, 11:30 a.m. EDT) — Defying the global economy, the rate of mergers and acquisitions in the global film and sheet market more than doubled in the first half of 2003.
Thomas Blaige & Co. LLC, a Chicago firm focusing on plastics industry transactions, tracked 23 deals involving film and sheet assets in the first six months of 2003. Only 11 such deals were reported in the same period in 2002.
That rate of increase was the second-fastest among four major industry segments tracked by the firm, trailing only pipe, profile and tube extrusion. Overall global plastics M&A activity — including injection molding and raw materials — was up 53 percent in the first half.
Most of the new activity in film and sheet came from larger firms looking to sell off noncore assets, according to Thomas Blaige, the firm's chief executive officer.
“Several economic factors — including variability in resin prices — are forcing a lot of firms to look at what their core business is,” Blaige said. “These are companies that make chemicals or fibers or specialty packaging which are refining their corporate strategies and seeing that film and sheet doesn't fit.”
As a result, a higher rate of management buyouts is occurring in film and sheet, and a larger number of financial buyers are appearing on the scene.
Resin pricing, which has been on an upward climb for most commodity and engineering materials since early 2002, also is playing an increasingly large role in decisions to sell.
“Resin costs make up about 60-70 percent of the total sales dollar for film and sheet companies, which is a larger portion than for other types of plastic processors,” Blaige said. “So investors and acquirers are concerned as to whether a film producer can purchase [resin] effectively.
“It's reached the point where if you're buying less than 50 million pounds of resin a year, you're probably at a 2 to 5 cent [per-pound] price disadvantage, and if you're buying less than 100 [million pounds], you're still a couple of cents off.”
Those choosing to sell their film and sheet units also have seen valuations rise in the past year. First-half film and sheet valuations were in line with other plastics properties at between 4½ times and 7½ times pretax earnings. Blaige said those numbers are up about 0.5 percent from the first half of 2002.
“Someone making commodity T-shirt bags might be at the lower end of the spectrum, while a maker of value-added, multilayer, co-extrusion packaging would be on the high end,” he said.
Only 20-25 percent of first-half film and sheet deals had some North American element. North American deals showing up on Blaige's radar screen included:
* Polyair Interpack Inc. of Toronto buying a 75 percent stake in bubble insulation maker Poly Tech Radinat Inc. of Quebec.
* FlexSol packaging Corp. of Pompano Beach, Fla., buying multilayer film producer Eclipse Packaging Inc. of Statesville, N.C.
* Spartech Corp. of Clayton, Mo., buying cellulosic sheet and acrylic film producer Polymer Extruded Products Inc. of Newark, N.J., for $24 million in cash.
* Command Packaging of Vernon, Calif., buying plastic bag maker Diamond Polyethylene Products Inc. of Los Angeles.
* KlÃ¶ckner Pentaplast of America Inc. of Gordonsville, Va., buying the rigid PVC film business of rival VPI LLC of Sheboygan Falls, Wis.
Blaige said the KlÃ¶ckner/VPI deal, which involved his former firm Lincoln Partners LLC of Chicago, was an example of “a larger, global plastics player expanding its reach.”
“It was the only acquisition of that size KlÃ¶ckner could make,” he added. “It was the No. 1 PVC film company buying the No. 3 company.”