In equity circles, they call the time between the early 1990s and mid-2000 the Golden Age of Mergers & Acquisitions.
``Never were there so many deals at such high prices,'' said Bill Ridenour, president of Polymer Transaction Advisors Inc. in Newbury, Ohio. ``The number and size of [M&A] service firms alone more than doubled to handle the growth in activity. But in 2000, the market declined precipitously.''
Look out above. The rebound has arrived.
In a Jan. 2 story forecasting Wall Street business trends, the New York Times predicted that overall M&A activity will boom this year, citing a reversal in economic trends. The plastics industry will follow suit, said Thomas Blaige, chief executive officer of Chicago investment banking firm Thomas Blaige & Co. LLC.
``We've dipped our toes in the water,'' he said. ``This year could be that blowout.''
The size of deals has risen to a level not seen since those bustling times. Transaction prices are back up. Equity firms and some competitors have become more aggressive buyers. Bank credit is flowing like black ink on signed letters of agreement.
After some lean years when the only way plastics deals could happen was through some creative and mentally strenuous financing options, those markets have loosened. So have company purse strings, said Jeff Kolke, vice president of chemicals and plastics for GE Commercial Finance, based in Chicago.
``Instead of worrying about operating and controlling their businesses, companies are actually generating cash and getting healthy,'' Kolke said, ``It's opened the door for them to look at more acquisitions.''
Blaige's firm recently prepared an annual report of global, plastics-based M&As. The number of deals slipped slightly from 369 in 2003 to 359 last year. But the size of the 2004 deals was much larger and involved more multinational companies.
The biggest recipients of the growth in deals were film and sheet extruders, which captured 21 percent of the total activity. Activity by pipe, profile and tubing extruders also rose, to 14 percent of the total, while injection molders held steady at 22 percent.
Deals involving blow molders and thermoformers declined slightly, accounting for some of the difference. Flexible packaging was a more-active sector than rigid packaging, Blaige said. In general, packaging was the largest end market for deals, with 31 percent of the 2004 total, he added.
Another news flash: As many as a dozen potential, good-size acquisitions involving plastics-based companies are under scrutiny, said several of those deal makers. While the volume of activity in North America is nowhere near that of 1999 yet, it is growing, Ridenour said.
The prices have been right. According to Kolke, many sellers are commanding multiples of more than 6½ times earnings before interest, taxes, depreciation and amortization.
Even better news for many of those making transactions has been the amount of interest generated in companies put up for sale. It is and will continue to be a sellers' market, said William Hornell, managing director of Chicago-based equity firm Mesirow Financial Inc.
For example, Hornell's firm now is working with a flexible packaging company that has attracted six strong bidders, he said. He is talking to a mix of strategic buyers, other equity firms and what he calls hybrids - processors that have the backing of private equity funds, Hornell said.
``Look at the fund raising that has gone on,'' he said. ``A lot of money is out there that needs to be put to work. I think we'll have a healthy run for a while.''
The money sometimes is going to firms that think globally. One of the automotive deals of 2004 involved Farmington Hills, Mich.-based Key Plastics LLC, which bought a Dutch company in order to grow in Europe. In that sector, New York-based equity firm Cerberus Capital Management LP also jumped continents, buying automotive plastics player Peguform GmbH of Bötzingen, Germany.
China increasingly is a factor in transactions, said Larry Gies, president and chief operating officer of Chicago-based equity firm Madison Capital Partners. ``People are looking at having a China [M&A] strategy, after having developed new products during the downturn,'' Gies said.
So-called middle-market companies, with sales of less than $1 billion, also could be attractive, he said.
``From what I've seen over the last 10 months, the number of interested parties for middle-market deals is three times what it used to be,'' Gies said. ``It will be a sellers' market for at least another 18 months.''
In addition, talk continues about how assertive financial buyers are becoming in the market. Capital is plentiful, Blaige said. Subordinated cash from private equity groups has reached as high as $250 billion globally, Gies added. Those companies have raised funds to invest in their portfolios during the slowdown; now they are looking for the right companies to pocket, he said.
Among the top 15 deals in 2004, compiled by Plastics News and sorted by size of acquired company, six featured equity firms as direct purchasers. In one, bathwares maker Maax Inc. of Saint Marie de Beauce, Quebec, was bought by a cluster of three investment firms, an employees' retirement fund and the current managers.
Expect strategic and financial buyers to continue to step up this year, sometimes working in harmony, said Douglas Lawson, head of the packaging group for Piper Jaffray & Co. in Chicago.
``Going forward, I think you're going to see a strong economy and access to capital still going strong,'' Lawson said. ``Bank markets continue to improve and high-yield [debt] remains a good alternative.''
But the question remains how long the good times will last. Several issues worry Ridenour. The cost to borrow money is starting to inch up following an increase in the federal funds rate, which will make it more expensive to buy companies over time, he said.
Compounding that, the supply of oil is fluctuating. Terrorist groups have talked of targeting refineries. Shortages and allocations could disrupt the market, Ridenour said.
Plus, rising deal prices could spook some financial buyers looking to sell properties at a profit in a few years, Blaige added.
Ridenour does not envision a lengthy period of health for M&A work today. ``I'm reluctant to say the window will last more than 2005,'' he said.
But Kolke sees signs of a longer recovery. The equipment utilization rate has reached 75-85 percent, meaning companies will have to add capacity to grow, he said. The number of credit facilities offering to finance deals has swelled, allowing for more acquisitions at more competitive terms, he said.
Commercial banks in the senior secured lending market have risen in number. In 2001, 34 commercial banks offered secured lending; that number reached 58 in 2004, Kolke said.
``We'll see larger deals in the next two years, as the plastics industry comes to another peak in the cycle,'' Kolke said. ``Economic predictors over the next few years are healthier, leading the way to larger transactions.''
Here are the top plastics M&A deals of 2004, by end market. Blaige's firm helped compile some of the information, after looking at each of the 359 global deals made in 2004.
``The plastics industry is a leading indicator of overall M&A activity,'' he said. ``And 2004 was a huge year.''
