I cover plastics machinery, so I hear lots of rumors about companies for sale. Such speculation is a staple for any business reporter who covers a specific beat. It's juicy. Sometimes it leads to a scoop.
But things have really changed. Say a source calls to ask my opinion. “Who do you think will buy Acme Injection Press Co.?” We used to bounce company names back and forth.
Now I give a two-word answer: Private equity. Private equity has come big time to plastics machinery.
As PN readers already know, a gusher of private-equity money is flowing into the plastics packaging industry. That makes sense. Packaging is still pretty fragmented, and the cash has fueled a mergers-and-acquisitions rollup. The bigger you are, the more clout you have when buying resin. In packaging especially, the price paid for plastic can be the difference between making a profit or losing money.
The money available is staggering. Giants Cerberus Capital Management LP and Blackstone Group were rumored to be candidates to buy DaimlerChrysler AG's Chrysler group.
Plastics machinery is a challenging business, especially in North America. It's a low-profit-margin business, but you still have to invest in new technology, or else you won't have much of a future.
The most dramatic private-equity news came in 2002. New York-based Kohlberg Kravis Roberts & Co. bought some of the best-known brands in plastics: Krauss-Maffei, Demag Plastics Group, Netstal, Berstorff and Billion. KKR grabbed the brands when it paid $1.7 billion for Mannesmann Plastics Machinery GmbH.
In mid-2006, KKR sold MPM to another private equity firm, Chicago-based Madison Capital Partners. In fact, several machinery makers are on their second private-equity owners. Germany's Adcuram Industriekapital AG bought blow molding machine maker Kautex Maschinenbau GmbH in 2004, and sold it last month to another German private-equity firm, Steadfast Capital GmbH.
You need a scorecard to keep up with all the deals: Adcuram continues to own the Battenfeld injection press business, which it acquired in 2006. Triton, a private-equity firm based in England, recently swung a deal for sister extruder makers American Maplan Corp., Battenfeld Extrusionstechnik GmbH and Cincinnati Extrusion GmbH. A management group backed by Hamilton Robinson LLC bought out full ownership in Davis-Standard LLC.
In every deal, existing managers get an ownership stake. That's smart, but I have a few simple questions. Private-equity companies want to pay down debt, improve financial performance, sell, reward their investors and move on to the next deal. Five years seems to be the typical timeframe.
But unless the market suddenly takes off, how can anybody — even the bright minds of a KKR — make enough major improvements to sell a machinery company at a premium? What about long-term planning? To boost financials quickly, do you just cut costs by laying people off and slicing research and development?
What does it mean for the future of the industry when the torchbearers of technology get flipped every few years?
Bregar is a Plastics News senior reporter based in Akron.