ROSEMONT, ILL. — Exceptional. Remarkable. Sustainable?
Mergers and acquisitions in the plastics industry continue at a torrid pace, extending a years-long run that's been fueled to a large degree by private equity money and strong credit markets.
But how long will this trend continue? That's anybody's guess, according to one group of financial experts on the subject who spoke recently at the Plastics Caps & Closures 2014 conference organized by Plastics News.
“It's an exceptionally robust market right now,” said Graham Schindler, a managing director at investment bank Houlihan Lokey and head of the firm's plastics and packaging practice. “Overall, the level of activity is exceptionally strong. It's really supported by robust credit markets, a decent economic environment so a company's financial performance seems to be trending in the right direction. And it's been that way for a while.”
Valuations are high for companies as there more buyers than sellers in the market these days.
And that's keeping company valuations, based on a multiple of earnings before interest, taxes, depreciation and amortization or EBITDA, higher than typical.
“There's easily a turn to two turns in terms of EBITDA multiple premium in the marketplace in terms of valuation because of that level of activity,” Schindler said.
As managing director of investment banking at Mesirow Financial, Rick Weil also sees the strong M&A market being fueled by private equity money, not just in plastics and packaging, but across the “spectrum of companies.”
“It's really been pretty remarkable. They are absolutely taking part in our industry. The private equity community has been a really critical part of the M&A environment and what we're seeing right now,” he said at the conference in Rosemont.
“Five, six years ago, there were probably 8,000 private equity-owned companies. Today, that number is 13,000, so it's really growing in prominence,” Weil said.
John Hart, a managing director at investment bank P&M Corporate Finance and head of the firm's plastics and packaging group, knows that the strong M&A market will end at some point.