LINCOLNSHIRE, ILL. — When it comes to plastics caps and closures, interest in mergers and acquisitions continues at a strong pace.
“Really not a lot has changed in two years. There's been a significant amount of consolidation in the space,” said John Hart, a managing director P&M Corporate Finance, an investment bank active in the industry. Hart leads the company's plastics and packaging group.
“Clearly,” he said, there is a case of “active buyers exceeding the number of sellers.”
Caps and closure companies provide an attractive target for both strategic buyers — those already in the business and looking to expand — as well as private equity firms looking for investment opportunities.
“It's a very interesting M&A market for caps and closures, to say the least,” Hart said during the recent Caps & Closures 2013 conference organized by Plastics News in Linconshire.
Private equity, thanks to cheap and plentiful money in the credit markets, has been quite aggressive in their valuations for the companies they target.
“Really, over the last two or three years, you've seen a significant uptick in private equity,” agreed Matt Bowersox, senior vice president with investment bank Houlihan Lokey.
Smaller caps and closures firms provide an attractive target for other companies looking to provide a broader, integrated product offering to customers, Bowersox said.
Packaging, he added, also is an attractive market because it does not generally see import risk from lower cost producers in China or other emerging markets.
Hart said he tends to be conservative in what he advises clients regarding the worth of their companies they are considering selling.
And, time and time again, he said he's “been very surprised by the prices buyers are paying.”
Acquirers, Hart said, have been surpassing his valuation numbers for the past 18 months to two years. “They beat what I communicated to the client pretty much across the board,” he said.
Private equity has pretty much outbid strategic buyers on a fairly regular basis and that, he believes, will continue.
“If you are a buyer, it's a very competitive marketplace to get deals done,” he said, as they are getting more expensive.
For company owners, however, this is a very good time to consider a sale.
Niche or smaller companies have been able to maintain their value in the industry by staking out a claim in a segment of the business. And that brings strategic buyers, looking to add on to their own portfolios, Hart said.
“You have a number of strategic buyers or consolidators that have significant interest in finding add-on acquisitions through their various platforms,” Hart said. “There's still a significant customer base out there that values differentiation in products, unique technologies and customization and partnering with the customer to differentiate that customer's product.”
“There's just a number of niche companies out there where the big guys, unfortunately, have not been able to obtain the market share organically so they turn to M&A to acquire these niche companies that have very attractive margins and positions,” Hart said.
P&M Corporate Finance keeps a data base of deals in the caps and closure market. That information indicates that 55 percent of the transactions during the past five years have been made by strategic buyers and 45 percent by private equity players.
All of the M&A interest in the market in recent years certainly has had an impact on the size of the companies providing services. Back in 2008, a total of 51 percent of all caps and closure suppliers had revenue of less than $50 million and other 26 percent had revenue between $50 million and $199 million, Hart reported at the conference.
Consolidation has helped shrink the number of smaller companies with less than $50 million of revenue to only 18 percent these days. The number of companies with $50 million to $199 million has increased to 38 percent, he said.
The largest segment, those with more than $500 million in annual sales, has increased from 15 percent in 2008 to 22 percent in 2013. And the percentage of firms with $200 million to $499 million in annual sales has increased from 8 percent in 2008 to 22 percent in 2013, Hart said.
