The other element that private equity has added to the plastics M&A field is time, since financial investors typically have a defined amount of time that they want to own assets for, before selling them for a profit.
Citadel's Huff is open about this factor, saying that “time is part of our business model.”
“We have a 5-to-6 year business plan for our investment cycle, and we're in our second cycle now,” he explained. “That means we have to be specific and nail every deal. We don't have the latitude to have one that doesn't perform.
“One of the things you learn is that culture is very important and that you need to have a solid integration plan,” Huff said. “You need to have specific goals for functional teams and to follow your playbook. You don't want to disrupt customer interface, so it's important to take into account the cultures of the two businesses you're trying to put together.”
Ridenour said that kind of timetable is a way of life for private equity firms.
“If you look at the private equity group, they're looking to a 3-to-7 year window to buy, build, grow and harvest the business,” he said. “That's still the end game. There will be a flurry of activity in business and the pace in any firm is going to be faster.”
In reviewing the last 25 years of plastics M&A, some deals were mentioned repeatedly, either for their sheer size or for other unique features. As is often the case, some of the biggest flameouts were the most memorable. The list included:
Atlantis Plastics Inc.
The packaging firm that grew through acquisitions between 1986 and 1994 to a peak of 15 plants and annual sales of more than $400 million. A crowded film market led to a bankruptcy filing in 2008, which listed assets of less than $210 million but debts of more than $250 million. Atlanta-based Atlantis eventually sold its films unit to AEP Industries Inc. and its molded products unit to private equity firm Monomoy Capital Partners LP. Monomoy merged the molding operations with Legget & Platt Inc. to form Fortis Plastics LLC, which lasted only three years before closing its doors for good in 2011.
Berry Plastics Group Inc.
Evansville, Ind.-based Berry in 1997 was a regional packaging firm with sales of less than $60 million. Fueled by private equity investors, Berry has made 30 acquisitions since then, posting sales of more than $4.7 billion in 2013. Berry now ranks as North America's third-largest injection molder, fifth-largest thermoformer and eighth-largest film and sheet maker, according to recent Plastics News rankings.
Engineered Plastic Components Inc.
EPC, an automotive injection molder and blow molder based in Grinnell, Iowa, has made 16 acquisitions since its founding in 1994. Led by owner and CEO Reza Kargarzadeh, the firm made five deals in 2011 alone. The firm now has annual sales of more than $250 million and ranks in the Top 50 of both injection molders and blow molders in the region.
Newtown Square, Pa.-based Graham Group has been involved in more than 60 deals since 1988 — both buying and selling. Its current assets include machinery firm Graham Engineering and packaging firms Convergence Packaging and Comar. Graham Packaging is North America's second-largest blow molder with annual sales of more than $2.6 billion. Graham Group joined with private equity firm Apollo Management to buy Berry in 2006, and then took Berry public in late 2013.
M.A. Hanna Co.
Starting in the mid-1980s, Hanna, a Cleveland mining firm that traced its history to the 1840s, began to transition into plastics, and by the mid-90s had made more than two dozen acquisitions in plastics and rubber. But integration problems already were showing up by 2000 when Hanna merged with Geon Co., another Cleveland-area firm that ranked as North America's largest PVC compounder, to form PolyOne Corp. Ongoing problems then caused PolyOne to lose almost $300 million in its first five years of operation. The firm also closed more than 20 plants and cut more than 1,300 jobs. The recession of 2007-08 sent PolyOne down even further before new CEO Stephen Newlin and his management led the company on a remarkable comeback.
The former Huntsman Packaging Corp. business was bought by financial giant JPMorgan & Co. in 2000 and set up shop in Schaumburg, Ill. But, like Atlantis, it struggled in a crowded film market, filing for bankruptcy in 2006 and then for a final time in 2009, when it listed assets of less than $700 million and debt of more than $1 billion. At that time, Pliant had annual sales of $1.1 billion, 18 plants and almost 3,000 employees. It was bought in 2009 by Berry. Private equity firm Apollo had ownership stakes in both firms.
Royal Group Technologies Ltd.
Materials maker Georgia Gulf, a leading PVC resin maker and compounder, paid $1.6 billion in 2006 for PVC building products maker Royal just before the North American housing sector fell from more than 2 million new units per year to less than 500,000. Almost every sector of Woodbridge, Ontario-based Royal, which had been built by Italian immigrant Vic DeZen, was exposed to the housing market. Market conditions soon led Atlanta-based Georgia Gulf to sell off or close a slew of Royal businesses and plants as well as close some of its own PVC operations. The firm lost $250 million in 2008 alone before recovering enough that it could merge with the commodity chemicals business of PPG Industries in 2012 to form Axiall Corp.
Sigma Plastics Group
Lyndhurst, N.J.-based Sigma has made six packaging-related acquisitions since 2009, most recently buying most of the assets of Excelsior Packaging Group in February. Sigma ranks as North America's second-largest film and sheet maker, with sales of $2.65 billion in 2013.
Clayton, Mo.-based Spartech became a leading plastic sheet maker and a top 30 maker of compounds and concentrates by making 14 acquisitions between 1993 and 2000. But integration problems arose, leading to losses of almost $300 million between 2006 and 2008. Spartech also closed a dozen plants in North America and Europe and eliminated more than 700 jobs from 2008-10. PolyOne then snapped up the struggling firm in late 2012 for less than $400 million. PolyOne closed six Spartech plants in mid-2013.
This deal ended badly for this Portage, Wis.-based thermoformer, which at its peak had sales of more than $100 million. Thermoforming veteran Curt Zamec bought the TriEnda business in late 2007 from Wilbert Inc., a thermoformer where he had been president and CEO since 1999. Shortly after buying TriEnda, Zamec sold a 36 percent stake in the firm to Neil and Don Kruschke, brothers who owned Ohio-based plastics machinery firms. In early 2009, TriEnda opened a new, $20 million plant, but things soon went south. Dutch container firm SAS soon was making up a staggering 85 percent of TriEnda's sales, which damaged TriEnda when SAS cancelled orders and refused to pay more than $10 million in invoices. TriEnda, which as recently as 2010 ranked as North America's 15th-largest thermoformer, eventually sold its assets amid a flurry of lawsuits between Zamec and the Kruschke brothers. (Neil Kruschke died in 2011.)
Private equity was involved in several of these deals. The list in general drew a range of reactions from plastics financial pros. The fact that six of the 10 deals on the lists were disappointments says more about “general business execution,” than about the plastics market, according to Hart at P&M.
“They put a number together, and sometimes it works out, but sometimes it doesn't,” he said. “When companies become part of a large corporation, they sometimes lose customer service — but some can keep it and become successful.”
“Pliant didn't work out and TriEnda blew up,” said Blaige. “In some of these cases, people overpaid. Spartech in particular overbid on some of its acquisitions. Some of these companies also had problems with post-merger integration.”
“Some of these deals were good and the companies have grown,” said Minnick at MBS. “But some were bought by people that didn't understand the business and they then brought in people from outside the business who didn't understand it either.”
Outside of private equity, P&M's Hart cited a sustained period of lower-cost debt and baby boomer entrepeneurs reaching retirement age as reasons for M&A growth in the last decade. Distressed sales caused by the recession, as well as the creation of stronger survivors from this period, also played a role, he said.
Going forward, PTA's Ridenour said that he expects to see “the same mix of buyers — well-financed private equity groups in direct competition with strategic buyers for assets.”
And it doesn't sound like Citadel's Huff, a resident of the private equity world, expects the M&A ride to end anytime soon.
“We have to be strategically aligned with our sponsors, so when an [acquisition] opportunity comes up, we don't have to debate,” he said. “We have a good team on our leadership group with a lot of industry experience. And we've got growth capital that can support organic growth and add production capacity.”