The mergers and acquisitions market for plastics materials has been a bit unpredictable lately, which could be a sign of growing interest in the market from a variety of investment sectors.
``The plastics and chemicals market is very active right now,'' said Jean-Rene Hartpence, founder of Canec International Ltd., an M&A consulting firm based in Toronto. ``It's been getting more active in the last year and has been drawing better companies into the market in North America and Europe. When that happens, it increases multiples.
``In 2002 and 2003, the environment wasn't very good to sell a business,'' added Hartpence, who works out of Canec's Paris office. ``Now buyers are back and [materials] producers have better outlooks on the future because their earnings have been restored.''
Two recent deals show the changing nature of the field. In the first, polypropylene giant Basell NV accepted the bid of an alliance of investment firms Access Industries Inc. and Chatterjee Group - both based in New York, but with Russian and Indian influences. In the second, aggressive private equity firm Barington Cos. Equity Partners LP bought a big chunk of leading compounder A. Schulman Inc.
Barington has no direct link to the plastics field, while the Access/Chatterjee group is connected only through Chatterjee's stake in Indian plastics maker Haldia Petrochemicals Ltd., which licenses Basell technology. They are not the typical strategic purchases made by a competitor, even by a supplier involved in another part of the industry.
The pending Basell deal ``may be a one-off kind of thing, but it falls into a pattern where private equity investors flush with cash are looking to invest in the plastics and chemicals industry,'' according to Jeff Dancer, president of Allan F. Dow Group LLC, a Houston M&A consulting firm.
``The risk is that they don't have experience in the business,'' added Dancer. ``They come in and look at costs they can take out, which is often research and development. They'll look at things that they view as fix-ups, like selling over the Internet instead of having a large sales force.''
For BASF AG and Royal Dutch/Shell Group - the oil firms that formed Basell in 2000 - a sale was preferable to a spinoff or initial public offering, Hartpence said, since it provided a large cash infusion and allowed the firms to focus on their remaining businesses.
Barington's investment in Schulman also represents an influx of private equity money into compounding, a sector that has seen less of such action than resin making or plastics processing. But Hartpence said compounders may draw more interest as resin makers look to make fewer grades of material, which would enhance the value of compounders' ability to specialize.
One area of the materials market that's received a surprising level of interest is resin distribution. Two deals went down in April alone, when Ashland Distribution bought the distribution business of Albis Plastics, and Entec Polymers LLC purchased a minority interest in North America Group Inc. NAG itself had been cobbled together from six acquisitions of smaller distributors made since early 2003 by industry veteran James Duffy.
Those moves - combined with the April 2004 merger of Channel Polymers and Prime Alliance - have led to three changes in the usually tranquil distribution landscape in just over a year. Distributors long had called for the need for consolidation in their sector, and it has apparently arrived.
Also in the past year, four plastics-related firms have tossed their hats into the public ring via initial public offerings. Westlake Chemicals Corp. has fared well, but Celanese Corp., Huntsman Corp. and Lanxess AG may be rethinking their decisions.
In May, officials with Formosa Plastics Group of Tapei, Taiwan, said they were considering an IPO of their U.S. businesses, including PVC, PET, polyolefins and plastic pipe. No date has been set for a Formosa IPO. Thermoset resin maker Hexion Specialty Chemicals Inc. - formerly Borden Chemical Inc. - also is planning an IPO. The strategy also is being weighed by Innovene, a spinoff of British Petroleum plc that includes a major PP unit.
Other recent deals of note in the materials sector include:
* British chemical firm Ineos Americas LLC's purchase of BASF's North American polystyrene business.
* Top compounder PolyOne Corp. buying the PVC compounding business of Novatec Plastics Corp.
* Sumitomo Bakelite Co. Ltd. buying thermoset compounders Vyncolit NV and Vyncolit North America Inc., in a deal valued at $106 million.
* Thermoset compound leader Bulk Molding Compounds Inc. snagging competitor Rodgers Engineering Corp.
