The recovery of the market for plastics mergers and acquisitions is expected to continue in 2011 even in the face of some slight headwinds.
[Gross domestic product] has recovered from late 2008 and 2009, investment professional David West said at the Plastics News Executive Forum, held March 7-9 in Summerlin. There aren't clouds on the horizon, but there aren't completely clear skies either.
West is managing director of the investment banking group at Stout Risius Ross Advisors LLC, a Chicago-based financial firm. He has almost 30 years of experience in financial markets and has been involved in private deals worth $2.6 billion and public deals worth $3.1 billion. SRR has participated in about 20 plastics deals, including transactions involving UFE Pte. Ltd., Viking Plastics Inc., Linpac Group Ltd., Step2 Co. LLC and Rowmark LLC.
Several financial companies that track the industry have said the number of plastics M&A deals increased at least 10 percent in 2010 vs. 2009, and the number of quality, non-distressed deals increased as well. With those improvements in mind, West described 2011 as a good environ- ment for deal activity.
We're seeing an improving and relatively stable economic environment and an improving M&A market, he said. Financial markets have improved, especially for larger transactions, he said.
Private equity has a large amount of dry powder. There's an overhang in demand for control transactions involving non-distressed companies. A lot of money is out there and available, and there's been a dramatic drop-off in costs to borrow.
Even some forms of alternate financing such as non-bank financing and sale/lease-back deals are now available, West added.
Challenges to this market recovery do exist, however, in the form of potential impact on resin prices from political turmoil in the Middle East, as well as from what West referred to as soft spots in high unemployment and lackluster housing activity. But even those issues have been somewhat counterbalanced by several quarters of improvement from manufacturing-related metrics such as GDP and auto sales.
West also cited an index of 21 publicly held plastics companies compiled by SRR. The firm divides those companies into four categories, each of which has shown higher earnings multiples in enterprise value.
Earnings multiples for public firms in medical plastics were under 8x in December 2009, but had increased to just over 9x by December 2010, according to the SRR index. Between December 2008 and December 2010, similar numbers for public automotive plastics firms nearly tripled, going from just over 2x to 6x.
In that same comparison, multiples for public plastic packaging firms went from just over 6x to almost 8x, and multiples for public industrial plastics firms jumped from less than 4x to almost 7x.
SRR officials said that although the multiples wouldn't be exactly the same for deals involving privately held firms, the rate of recent increase would be similar.
There's been a pickup in the health-care industry, and industrial and packaging are tracking up with the economy in general, West said. There are pretty favorable trends across all areas.