Imagine your company structured like a sports team. The best sports executives always are evaluating their players and looking for ways to address underperformers. The goal, after all, is to win.
In the case of a business, the players are units or product lines. These days, mergers, acquisitions and divestitures are integral tools in the art of making businesses stronger.
According to the numbers, M&A activity is on the rise. According to Dealogic of New York, global announced M&A volume reached a record $4.06 trillion in 2006, an increase of 36 percent from 2005 and 21 percent above the previous high of $3.33 trillion in 2000.
Financial-sponsored M&A buyouts reached $737.4 billion in 2006, which was more than double the previous high of $352.3 billion in 2005. The United States accounted for 56 percent of volume and Europe accounted for 33 percent.
The upcoming year will prove to be an anything-can-happen environment in plastics as deal volume is expected to escalate and private equity money will compete against strategic pockets in a heated battle for market share.
Some analysts, pointed out by a recent article in the Christian Science Monitor, fear that the flurry of activity is similar to the peak reached in 2000, occurring just before a bear market and the 2001 recession. Will stock prices and M&A activity fuel each other and then collapse after a speculative frenzy?
That remains to be seen. For now, activity is on the upswing. In plastics, the trend is fueled by companies recovering from the wild ride of the resin market in 2005 and boasting healthier balance sheets.
In 2007, no doubt there will be big, bigger and biggest deals on the table as corporations finesse global strategies and choose where they're going to focus their businesses to stay competitive. General Electric Co., for example, seems poised for change, with the reported effort to sell its GE Plastics unit, and plans to invest in what it considers higher-growth markets.
The marriage of pipe companies J-M Manufacturing Inc. of Livingston, N.J., and PW Eagle Inc. in Eugene, Ore., also highlights the desire for greater market share, more leverage with customers, and vertical integration. No doubt there will be further activity in 2007 and beyond among smaller players competing in the pipe market.
Some plastics deals have changed the dynamics of plastics end-markets over the past year, illustrated by the $1.6 billion purchase of building products firms Royal Group Technologies Ltd. by Atlanta-based Georgia Gulf Corp. The move allows Georgia Gulf to emulate the downstream business model used by some of its competitors.
Whether it's private equity interest or a strategic buyer, the structure of the industry is changing in so many ways, and 2007 will bring more of that change.
DeRosa is an Akron-based Plastics News staff reporter.