TAMPA, FLA. (Feb. 16, 2:35 p.m. ET) — The rebound of the global mergers and acquisitions market is expected to continue in 2012 — and that's good news for plastics pros like Mike Huff and Vern Boersma.
Huff is CEO of Citadel Plastic Holdings Inc., the Radnor, Pa.-based firm that's made six acquisitions in the compounding market since 2007 and is now seeking a buyer. Boersma is chief financial officer of Engineered Plastic Components Inc. Based in Grinnell, Iowa, EPC has made 13 injection molding-related acquisitions since 2007 — including five in 2011 alone — and is looking to make more.
Huff and Boersma – along with financial veterans Thomas Blaige and John Chrysikopoulos — spoke at the 2012 Plastics News Executive Forum, Jan. 30-Feb. 1 in Tampa.
Watch a video interview with Citadel's Huff.
Huff pointed out that each of Citadel's six acquisitions “aligned with our basic strategy of building a broad array of material solutions.” The firm has annual sales of about $300 million, operating 14 sites in seven countries.
“We had to assess each one's strategic fit and ask if it will add material technology or if it complements our portfolio,” he said. “Our overall goal was to build a world-class global material solutions provider.”
Now that Citadel — which is owned by Chicago private equity firm Wind Point Partners — is looking for a buyer, Huff said that officials are “very excited about moving to the next generation of ownership.
EPC's buying spree — 15 deals in total since its founding in 1994 -makes it look like Citadel proceeded with caution. “It's been a fun ride, and it doesn't look like it's slowing down anytime soon,” Boersma said.
“We determined our growth plan by industry and by geographic area,” he added. “Every one of the deals is customer-driven. Sometimes a supplier is going under, and tools and molds are available.”
One of the keys to EPC's rapid-fire approach to M&A, according to Boersma, is that owner and CEO Reza Karzagadeh is the firm's decision maker. “We don't have to go to a board of directors,” Boersma said. “We know the industry and the financial side.”
With sales of $175 million expected in 2012 — from 14 plants, all in North America — EPC now is looking to diversify beyond its current sales mix, which is almost 60 percent automotive and 30 percent appliance.
Blaige and Chrysikopoulos each said they're observing signs that plastics-related M&A is heading in the right direction in early 2012.
Blaige — chairman and CEO of Blaige & Co. In Chicago — said that deal volume in plastics and packaging M&A increased tenfold between 2001 and 2010. The sector “doesn't see ups and downs like the larger economy,” he explained.
Bigger companies are becoming increasingly active in plastics M&A, according to Blaige. In seven market segmants studied by his firm, 55 percent of the top 50 companies in each segment have been involved in deals in the last 10 years.
“It's lead, follow or get out of the way,” he said.
Valuation multiples paid by private equity companies also were back to 9.1 times earnings last year. They were at 9.5 in 2008 before sinking as low as 6.5 in 2009. Both Blaige and Chrysikopoulos said the current market is a sellers' market.
“It may be time to sell fairly soon,” Blaige said. “The industry's investment cycles are getting shorter.”
Chrysikopoulos — a managing director with Mesirow Financial in Chicago — said that plastics have accounted for 43 percent of all packaging deals made since 2007. Strategic buyers have been the most active during that time, he said, adding that valuations have been improving of late.
An index of stock prices of six flexible packaging firms has climbed 47 percent since 2007. Those firms now have higher cash balances and have been aided by recovery in public markets, Chrysikopoulos said.
An astonishing amount of funds — more than $400 billion — remains uninvested in U.S. private equity. Flexible packaging consolidation may be a target of these funds, since, according to Chrysikopoulos, top three firms Berry Plastics Corp., Bemis Co. and Sealed Air Corp. have a combined market share of less than 30 percent.
As for what kinds of plastics companies investors are seeking in 2012, Chrysikopoulos said they're “looking for leadership, high organizational growth and strong technology.”