Mergers and acquisitions among materials makers have cooled down a bit after the blockbuster pace of the second half of 2007, but the sector still is drawing investors from within and outside the industry.
Plastics News tracked four materials deals in the first half of 2008, all of which were in the compounding market:
* Private equity firm Wind Point Partners LLC of Chicago bought Bulk Molding Compounds Inc., a thermoset resin maker and compounder in West Chicago, Ill. Wind Point made the deal through its Citadel Plastic Holdings Inc. unit.
* Infinity Compounding Corp. founders Carlos Carreno and Tim Carroll bought a majority stake in the engineering resin compounder based in Logan Township, N.J., near Bridgeport, from custom injection molder Seitz Corp. in Torrington, Conn.
* Plasticoncentrates Inc., an engineering resin compounder and concentrates maker in Chester, Pa., bought the compounding business of PlastiScience LLC in Smyrna, Del.
* Color concentrates maker Techmer PM of Clinton, Tenn., purchased Accel Corp., a color concentrates maker with locations in Avon, Ohio, and Naperville, Ill.
The most intriguing of those four might be Wind Point's deal for BMCI. It comes a year after Wind Point bought Matrixx Group Inc., an Evansville, Ind.-based firm with locations in the U.S. and Europe. Officials with Wind Point said the firm plans to build a global plastics compounding company a statement that opens the door for further acquisitions.
M&A market watchers Stewart Kohl and Bill Ridenour said there's still value in the plastics materials field, but it might be harder for investors to swing big deals in the months ahead.
``The market has evolved,'' Kohl, managing general partner of private equity firm Riverside Co. in Cleveland, said in a telephone interview. ``There's still quite a bit of private equity money interested, but banks aren't similarly inclined to provide funding because of the credit crunch.''
Riverside's portfolio contains several plastics-related businesses, including Hudson-Sharp Machine Co., a producer of bag-making machines in Green Bay, Wis.; and three companies involved in processing Commonwealth Laminating & Coating Inc. of Martinsville, Va.; Connor Sport Court International of Salt Lake City; and Stoffel Seals Corp. of Nyack, N.Y.
Instead of looking at making a splash with a big deal, Kohl said the plastics M&A market ``has taken a flight to quality.''
``If you've got a high-quality firm, you're still going to get a lot of interest,'' he said. ``But you've got to be special and unique enough that you can pass on price increases for energy and raw materials to your customers.''
Kohl and Ridenour who owns Polymer Transaction Advisors Inc. in Newbury, Ohio said good materials firms still can command sale price multiples ranging from six to eight times earnings, though Ridenour noted that multiples have fallen about 0.5-0.75 in the past year or so.
``Deal activity and interest is about the same if not higher than it was last year, but investors are getting less from the bank for these deals,'' said Ridenour, whose firm currently is working on three materials-related plastics deals.
Wind Point's attempt to consolidate the compounding field has drawn commentary because of its seeming similarity to a strategy attempted by M.A. Hanna Co. in the late 1980s and 1990s. That strategy succeeded at first, but eventually led to Hanna's merger with Geon Co. to create PolyOne Corp. As a result of the merger, hundreds of jobs were eliminated and several plants were closed.
Riverside's Kohl said Wind Point may succeed where Hanna failed because of Wind Point's access to a large pool of capital and its ability to time investments to its advantage, instead of having to please shareholders and maintain a strong share price on a quarterly basis.
Ridenour sounded less convinced of the strategy, saying it ``might be more difficult than Wind Point expects'' to get higher multiples than it's paying if the company later decides to sell businesses like Matrixx and BMCI.
Bigger vs. better
These deals may not be on the same level as the 2007 deals for GE Plastics, Lyondell Chemical Co., Huntsman Corp. and half of Dow Chemical's commodity plastics business. But as it looks like the Huntsman deal might not go through, perhaps bigger is not always better.
The sale of Salt Lake City-based Huntsman might not come to pass, since bidder Hexion Specialty Chemicals Inc., backed by private equity giant Apollo Management LP of New York, wants out of the $10.6 billion deal. Columbus, Ohio-based Hexion claims Huntsman's financial performance has worsened since the offer was made last year.
The Huntsman situation isn't totally surprising in light of what has happened with smaller plastics assets. Both PET maker Wellman Inc. of Fort Mill, S.C., and additives maker Chemtura Corp. of Middlebury, Conn., shopped themselves around recently but found no buyers, and have said they will move forward alone.
Compounder A. Schulman Inc. of Fairlawn, Ohio, also remains on the market, but no offers have been made public since Schulman announced its intentions more than three months ago. Solutia Inc. announced June 30 that it was putting its nylon unit up on the selling block.
Companies like Schulman and St. Louis-based Solutia might not want to get their hopes up, according to Ridenour.
``This isn't a good time to be a U.S.-based resin maker or materials firm,'' he said. ``Because of energy prices and feedstock costs, they're in a bad spot right now.''
And, in Kohl's eyes, the rest of 2008 might not be very different: ``It's probably going to be a difficult time for the rest of the year,'' he said. ``When you look at the banking crisis, the credit crunch and fears of inflation, it's a tough time to be in the market.''