Buzzards circling overhead, the plastics M&A market lurched through 2009 like a disoriented Frankenstein monster, nearly sun-blind and suffering from overexposure.
For 2010, watchers believe the market may have found an oasis — or at least a bag of IV fluids large enough to ward off dehydration.
Industry pros contacted by Plastics News for this week's M&A special report said they expect private equity to play a larger role this year — and they apparently weren't kidding. Two more such deals have gone public just since Jan. 18, with Castle Harlan Inc. buying both PVC Container Corp. and Pretium Packaging LLC, and Asparron Capital LLC picking up injection molder Cosmetic Specialties Inc.
Private equity firms have spent the last two years sitting on their hands as cash continued to flow into their pockets. Few investments have seemed safe, but now investors are getting antsy. Any business with decent returns and solid cash flow has a good chance of being a target for acquisition in 2010.
In the publicly held world, compounder/distributor A. Schulman Inc. faced a similar situation late last year, with a good chunk of cash on hand, as its European unit had flourished even as its North American efforts were struggling. Not wanting to disappoint investors — who publicly had assailed the company twice in recent years — Schulman execs grabbed several large sacks adorned with dollar signs, and $200 million later, held the keys to ICO Inc., a specialty compounder with a sizable presence in rotational molding.
To be precise, the powers-that-be at Schulman used cash for only half the deal, making up the rest in stock. But make no mistake, this definitely was a case of redemption through acquisition.
Schulman and others — including serial acquirers like Berry Plastics Corp., Sigma Plastics Group, Spell Capital, Wind Point Partners and Riverside Group — may have to dig a little deeper to make deals in 2010, as most pros quoted in this week's stories feel the worst of the distressed deals have vanished, their bleached bones drying to dust before being whisked away by the winds of commerce.
One of the last true bargains may have changed hands recently as Radici Group paid less than $6 million for Michael Day Enterprises Inc., a compounder and recycler that rang up sales of almost $45 million in its last fiscal year. If the auto market makes even a mild comeback, the Big Three work MDE had accumulated in 20-plus years will more than cover Radici's purchase price.
But even with damaged, dinged and dented plastics firms being hustled off the lot, plenty of small to midsized firms that have stuck to their niches remain. These firms have resisted the urge to follow trends or stay in markets well past their peak. At this point, I'd ask makers of CD cases and disposable cameras to raise their hands, but that would reveal their location to bill collectors.
The good folks who run these thriving companies might find themselves having lunch with some nice people from a private equity firm — or even from a competitor — in the weeks and months ahead. And if they do, you can be sure those business owners and operators will order appetizers.
Esposito is an Akron, Ohio-based Plastics News senior reporter.