Almost every sector of plastics processing saw double-digit growth in merger and acquisition activity during the first half of 2014 with injection molders making up the largest share of deals and blow molders recording the strongest gain.
Transaction volume increased 15 to 17 percent for the first two quarters compared to the same period of 2013, according to investment bankers in the plastics and packaging space.
Chicago-based P&M Corporate Finance tracked 176 deals so far in 2014 with sustained interest in every sector except for sheet and thermoforming companies, which were down by 10 transactions, or 50 percent, from the first half of 2013 because of slowed consolidation.
Blow molding deals are surpassing the sector to date with P&M's global database showing the 13 transactions completed are up 63 percent from the prior year.
Deborah Douglas, founder of the St. Louis-based Douglas Group, noticed the surge.
“Injection molding is a kingpin still, but this year there's more of an appetite for blow molders when at one time it was oh, bottles, they're cheap, not proprietary enough, and they didn't command great prices,” Douglas said. “Now there's a pretty good market for them.”
Of the 176 transactions completed, 92 deals came in the first quarter and 84 in the second, which was the first decline in volume since the first quarter of 2013, when many deals were pulled forward into 2012 because of a tax change. Still, volume was near the three-year quarterly average of 86 deals and analysts say 2014 got off to a healthy start and is picking up.
Strategic buyers inked 112 of the 176 deals. However, on a percentage basis, private equity transactions saw the biggest rise of 33 percent due mostly to platform acquisitions.
John Hart, P&M's managing director of plastics and packaging, points to Genstar Capital LLC's purchase of Pretium Packaging, a maker of rigid plastic containers and lids, as an example of a platform acquisition in the blow molding sector. Genstar had no packaging company in its diverse portfolio of firms offering medical devices, industrial fasteners and software services.
Hart said Genstar acquired North America's 17th largest blow molder according to Plastics News' rankings for $498 million. He considers it a marquee packaging deal for 2014 along with the private equity firm of Clayton, Dubliner & Rice LLC acquiring the well-positioned Mauser Group, which makes industrial packaging, drums and bulk containers, for $1.7 billion.
“There's still a significant amount of money out there in the private equity community that needs to be put to work,” Hart said. “We're hearing from private equity groups that they're being pressured to deploy capital.”
The M&A market is showing no immediate signs of letting up in that respect and others. Plastics M&A deals surpassed the 150 transactions of the first half of 2013 and are on track to meet or exceed last year's total volume of 328 deals.
“The real change in 2014 is the cyclicals have bounced back,” said Thomas Blaige, chairman and CEO of Blaige & Co. in Chicago. “There are three things owners look at in terms of selling: their company's performance, the external market, and are they psychologically ready? They want all three lights to be green. The first light was red then amber for the past few years on cyclicals because of their internal performance but they're starting to show some good numbers and owners are saying maybe I can sell now. You'll see all these building products and molding deals going to market.”
In general, transactions take six months or more to complete so closed deals won't spill from the pipeline right away.
“We've seen a significant uptick in activity in the second quarter that will likely result in a strong fourth quarter or first quarter of next year,” Hart said.
Andrew Petryk, managing director and principal at Brown Gibbons Lang & Co. in Cleveland, won't be surprised if the market gets flooded with inventory in 2015 if not sooner.
“The momentum is accelerating in plastic transactions,” Petryk said. “I think it will be strong for the next two years.