The pace of M&A activity for plastics materials quickened in 2009 and greater things may be in store for 2010.
Investment firm Blaige & Co. LLC tracked 92 global deals in resins, colorants and compounding in 2009 up from 70 in 2008, a one-year increase of more than 30 percent. Those 92 deals were the most materials deals tracked by Blaige since 2003, when 96 were reported.
Many of the 2009 deals were divestments made by larger chemical firms, according to Blaige CEO Thomas Blaige.
We've seen this over the years with a lot of chemical companies, Blaige said. When their downstream businesses don't perform, they get rid of them.
One of the more significant materials deals in the second half of 2009 was compounder/distributor A. Schulman Inc.'s December purchase of compounder ICO Inc. That deal involved almost $200 million in cash and stock. It was Schulman's first major acquisition in at least a decade.
Schulman was in the unique position of having cash and having a bank line of credit to go with it, said Bill Ridenour, president of Polymer Transaction Advisors Inc. in Newbury, Ohio.
Blaige said the Schulman-ICO deal is proof that Fairlawn, Ohio-based Schulman a compounding leader in both North America and Europe has recovered from battles it has had with investors Barington Capital Group LP and Ramius Capital Group LLC in recent years. Both firms had criticized Schulman for poor performance.
Because of its previous problems with investors, Schulman had the perception of being undervalued, said Blaige. But they cleaned things up in order to go out and buy somebody. It looks like they did it as a signal to the market that they're going to be active.
Citadel Plastics Group also continued its assault on plastic material properties. Radnor, Pa.-based Citadel backed by private equity firm Wind Point Partners of Chicago made its fifth plastics deal since 2007 when it bought Fiberfil Engineered Plastics Inc. of Stoney Creek, Ontario. When the deal was announced in September, officials with Citadel said they would continue to look for ways to grow their thermoplastics and thermoset businesses.
One of the most talked about plastic materials deals of the second half of 2009 was one that hasn't been made yet. Reliance Industries Ltd. of India reportedly has bid for polyolefins giant LyondellBasell Industries AF SCA but the two sides aren't in agreement on a sale price reported to be between $10 billion and $15 billion. LyondellBasell based in Rotterdam, the Netherlands has been operating in bankruptcy since January 2009.
Another significant, rumored deal involves Dow Chemical Co. selling its global styrenics and polycarbonate businesses to Seoul, South Korea-based conglomerate Lotte Group for between $1 billion and $2 billion. Other bidders may be in the hunt as well, media reports said. A Dow spokesman said the Midland, Mich., firm remains on track to sell the business by the end of the current quarter. In September, Dow sold a plastic pigments business to laminates and materials supplier Omnova Solutions Inc.
PolyOne Corp. made a late-year move into the medical market, buying compounder New England Urethane Inc. for about $12 million. NEU supplies thermoplastic polyurethane-based compounds for catheters, tubing and similar products. Avon Lake, Ohio-based PolyOne North America's largest compounder reported paying an earnings multiple of 4.9 times for NEU a number regarded as affordable by M&A pros interviewed by Plastics News.
Some bargain-shopping also took place in the second half. In December, New York private equity firm SK Capital Partners LP paid $45 million for the PVC additives business of Chemtura Corp., a unit that generated 2008 sales of almost $375 million. The deal requires SK to take on numerous liabilities related to the business.
These and other deals could bode well for 2010.
In general, M&A is getting better, especially in more fragmented areas like compounding, where there are a handful of large players and a gazillion small guys, said Graham Schindler, senior vice president with investment firm Houlihan Lokey Financial Advisors in Chicago. It's good to have geographic reach and a broad product mix.
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