International mergers and acquisitions have heated up in the plastics industry, assisted by favorable exchange rates in a sector that is becoming more global.
Tom Blaige, chief executive officer and managing partner of Blaige & Co. LLC of Chicago, said his firm analyzed plastics industry transactions from 2002 through 2006 and found a big increase in recent years in deals involving non-U.S. firms, both buyers and sellers.
The plastics industry in the first half of this year saw activity ignited by the purchase of GE Plastics by Riyadh, Saudi Arabia-based petrochemical firm Saudi Basic Industries Corp. (Sabic) at a price of $11.6 billion.
``Sabic came in with excess cash and wanted a place to put it,'' said Bill Ridenour, president of Polymer Transactions Inc. in Newbury, Ohio. ``They're a cash-rich buyer that wanted to deploy its cash.''
Also, Rexam plc in London acquired the remaining plastics assets of Toledo, Ohio-based Owens-Illinois Inc., giving Rexam an even larger presence in the U.S. market for rigid plastics. The price tag for the O-I assets came in at $1.8 billion, or a whopping 11.3 times 2006 earnings before interest, taxes, depreciation and amortization.
Cross-border transactions are happening across all sectors. Compounder A. Schulman Inc. advanced further into Europe. In June, the Fairlawn, Ohio-based company announced its intent to acquire color concentrate maker Delta Plast Group, with plants in Sweden and Belgium.
More recently, Ningbo, China-based Minth Group Ltd. said it would establish a beachhead for its growth with North American automakers through its majority ownership purchase of Beavercreek, Ohio-based auto supplier Plastic Trim LLC.
In the packaging sector, experts see increased interest in the economies of Brazil, Russia, India and China, known as the BRIC countries.
``Clearly, what we're seeing is that because customers are more and more global, they're wanting to have a more global supplier base. Really, that's where a lot of big multinational consumer goods companies have set up production,'' said Ken Brooks, senior vice president of Ernst & Young Orenda Corporate Finance Inc. in Montreal.
``Processors are ... looking to be on the ground to be serving those growing domestic economies. That's really what's fueled a lot of the recent cross-border deals. You want to go where there is high growth,'' Brooks said.
European companies consider U.S. firms inexpensive right now because of the value of the dollar vs. the euro, according to Blaige.
Blaige has been talking with several companies in Europe that are interested because they're buying with the powerful euro right now.
At Ridenour's firm, officials have seen an increase in Indian companies looking to grow into the United States because they ``now feel strong enough,'' Ridenour said.
In the latter part of 2007, several major international deals may affect the global plastics industry, officials agreed.
In May, New York private equity firm Blackstone Group announced it would acquire rigid sheet producer KlÃ¶ckner Pentaplast GmbH & Co. of Montabaur, Germany, for $1.8 billion.
The Blackstone deal is an example of a private equity firm acquiring a European company with a global presence. KlÃ¶ckner has 21 facilities in 11 countries and has expanded organically and through acquisitions.
Amcor Ltd. confirmed July 2 it is selling seven of its European PET plants to Spanish chemicals group La Seda de Barcelona SA.
A few more international deals could be on the drawing board. Glenview, Ill.-based Illinois Tool Works Inc. has been cited by some financial publications as a takeover target for private equity buyers, which could take the conglomerate private.
Also, Pittsburgh-based Alcoa Inc. has a hostile bid on the table for competitor Alcan Inc. of Montreal. While Alcan has rejected the bid, the activity still signals a change in the businesses, experts said, as both companies have significant plastics holdings. Alcoa itself has been looking to offload its packaging and consumer businesses, the $3.2 billion segment that includes Closure Systems International and Reynolds Food Packaging.
``It may also be that Alcan doesn't get transacted,'' Brooks said. ``If it doesn't, it may keep its packaging business. If it does, in the medium to long term, acquirers would look at exiting packaging; it would be less core to the business going forward.
``There would be significant changes in who will own the assets, not necessarily changes in how the assets are operated.''