Plastics packaging giant Berry Plastics Corp. has been acquired in a $2.25 billion deal by private equity firms Apollo Management LP and Graham Partners.
``We were a powerful company before, and now Apollo has us in a large fund that will allow us to continue our growth and strategy,'' Berry President and Chief Executive Officer Ira Boots said in a June 29 phone interview. ``We're a high-growth company, and we'll remain on track.''
Evansville, Ind.-based Berry, ranks as one of North America's five largest injection molders. The firm had sales of $1.3 billion in 2005 and employs 6,800 at 25 plants worldwide. Since 2002, Berry has been owned by New York investment firms Goldman Sachs Capital Partners and JPMorgan Partners, who bought it from other financial owners for $840 million.
New York-based Apollo will own a majority of Berry. The deal is Apollo's second blockbuster plastics move in seven months. In late December, the firm paid $975 million for Tyco's Plastics, Adhesives and Ludlow Coated Products businesses.
Berry is a major producer of rigid plastic packaging, including open-top and closed-top products. The firm claims to be the largest provider of injection molded plastic drink cups in the U.S. Berry also claims to be the country's largest maker of thermoformed polypropylene drink cups in sizes of 32 ounces or larger.
Globally, Berry claims the top spot in injection molded aerosol overcaps. The firm also sells plastic plates, bowls, pitchers, tumblers, outdoor flowerpots and similar housewares items under the Packerware brand name.
In a June 28 news release, Apollo founding partner Joshua Harris described Berry as ``a true franchise business and one of the best-positioned, highest-margin specialty packaging businesses in the industry.''
Newtown Square, Pa.-based Graham controls more than $850 million in mostly industrial investments. Graham Partners also is affiliated with Graham Group, a $2 billion investment firm that holds a minority stake in Graham Packaging Co. LP. Officials with both Graham Partners and Berry said there will be no connection between Berry and York, Pa.-based Graham Packaging, which ranks as North America's largest blow molder, according to Plastics News' sales-based ranking.
Apollo spokesman Steven Anreder said the Berry deal was ``a stand-alone acquisition,'' but he declined to comment on other aspects of the transaction.
Boots and other members of senior management will remain in place and also will retain an equity stake in the firm. That stake will be split among about 250 Berry shareholders, Boots said.
In the last few years, Berry's growth has been stratospheric. The firm spent $228 million to buy competitor Landis Plastics Inc. in 2003 and $445 million to snag rival Kerr Group Inc. in 2005. Berry also is investing more than $100 million to expand its Packerware division in Lawrence, Kan. Boots said the Packerware expansion - which will install new thermoforming equipment for drinking-cup production - will be complete by early 2007.
In 2001, Berry's sales were less than $500 million. Annual sales were less than $60 million when the firm was acquired by First Atlantic Capital in 1990. Berry was founded as Imperial Plastics in 1967 and bought by Florida citrus grower and real estate developer Jack Berry Sr. in 1983.
The new sale price is about 8.8 times Berry's 2005 pretax earnings, according to Boots. That multiple represents an increase from 2002, when the firm sold for 7.25 times pretax earnings.
``I think [the increased multiple] tells us that our company is better than it was in the past,'' he said. ``The market reacted to that.''
One packaging industry insider described the multiple valuation as ``slightly rich,'' but added that Berry's low annual capital expenditure number - compared to some of its competitors - might make the price look more reasonable.
``Berry's not running around opening 10 new plants,'' the source said. ``It's a good company. Berry is among the high-yield plastic packaging firms. They've got good cash flow and a good management team.''
The sale amount also seemed ``a little pricey'' to Jeff Dancer, president of the Allan F. Dow Group LLC investment firm in Houston.
At that price, ``there's no room for margin squeeze if raw materials do something crazy,'' said Dancer, who joined Allan F. Dow in 1999 after a 25-year career with Phillips Petroleum Co.
``But there's still lots of money out there chasing quality investments, so the price may have been bid up a little.''
In March, Berry management announced intentions to be sold or to enter into an initial public offering. At the time, industry analysts said the firm might command a price between $1.7 billion and $2 billion.
Berry's net profit dropped 14 percent to $19.8 million in 2005 vs. 2004, but officials said without charges related to the Kerr acquisition, Berry's net profit would have increased about 17 percent.
Apollo also owns Hexion Specialty Chemicals Inc. of Columbus, Ohio, which ranks as the world's largest thermoset resins maker.
Graham Partners' other plastic holdings include Line-X Franchise Development Corp., which makes a plastic spray-on for truck-bed linings, and Infiltrator Systems Inc., a producer of plastic wastewater management systems. Earlier this month, Graham also acquired cellular PVC millwork maker Turnkey Millwork Inc.
>From a customer perspective, Boots said the deal should not have much effect. ``It will be business as usual with Berry,'' he said.