(Jan. 16, 2006) — Plastics processing, it seems, is a manufacturing sector that is incredibly fragmented and ripe for consolidation — and always will be.
Just half-kidding there. Investment bankers and other mergers and acquisitions experts have long been interested in plastics company consolidation trends, and they tell some interesting stories in this week's M&A special report.
Nevertheless, the raw numbers tell an interesting story.
You might think there are a lot fewer companies today than there were a decade ago. After all, the 1990s was a period of major consolidation, and the first half of this decade has seen lots of bankruptcies and seemingly few new companies. On top of that, during the past five years there has been an average of about 115 M&A deals each year involving North American processors, according to data from Curtis Financial Group LLC.
So, considering all those factors, you'd expect that these days there would be a lot fewer processing companies, at least in North America, right?
Consider our own rankings of North American processors — thermoformers, injection molders, extruders, rotational molders and blow molders. In 1995, we ranked a total of 1,276 companies. Last year, we ranked 1,660. That's an increase of 30 percent.
We admit, this isn't a scientific measure. Part of the increase can be attributed to our ongoing efforts to rank as many companies as we can find. But that doesn't explain, for example, that even in some apparently mature markets, there has not been a big drop-off in the number of players. In blow molding, for example, in 1995 we ranked 177 companies, and in 2005 we ranked 172. That's arguably the most mature processing sector, and it was the only one that showed any drop at all.
For injection molders, the largest sector, in 1995 we ranked 533, and in 2005 we had 655.
Obviously many companies have disappeared from our rankings, either through bankruptcy or by meeting a sad demise.
Still, many other processors have surfaced to take their places. Many have been transplants from overseas. Others have been new — hard to believe, but there are entrepreneurs out there who still believe the best place to invest is in plastics processing.
Then again, maybe it's not hard to believe. After all, according to this week's report, private equity firms and hedge funds are active in the processing sector, too — not necessarily to finance new companies, but rather to put together profitable combinations. If the so-called smart money still thinks processing is worth a look, then obviously some sharp young engineers and executives also might like the idea of being their own boss and starting a new company.
We've also seen plenty of examples of individuals downsized out of a job, or cut loose as a result of a merger, who then turn around and start a new company a few months later. Once you get resin in your blood, you're not going to take your money and buy a Taco Bell franchise.
Who knows, if your start-up firm is successful, maybe you can turn around in a few years and sell it to a financial buyer. And then the whole wonderful cycle starts over again.