LAKE LAS VEGAS, NEV. — Taking the right steps now can allow plastics processors to increase the value of their companies when the time comes to sell the business.
“Your growth is directly linked to your strategy,” P&M Corporate Finance LLC vice president Ryan Shuchman said at the 2015 Plastics News Executive Forum, Feb. 4-5 in Lake Las Vegas. “If you're bringing something unique to the market, you're going to grow faster.”
Plante Moran PLLC plastics team co-leader Jeff Mengel also spoke at the event. The firms are affiliated with each other, and are based in Southfield, Mich.
Mengel spotlighted results of his firm's 2015 North American Plastics Industry Study, which analyzed two years of data from 237 plastics processing plants in the region. About 60 percent of plants in the study were injection molding plants.
Plants in the study averaged two-year EBIT (earnings before interest and taxes) growth of 8.6 percent. That included 2.6 percent growth for the bottom quartile of plants in the study and 14.7 percent for plants in the top quartile.
The study also assigns a value rating to plants, which correlates with the earnings multiple and selling price a business is likely to receive when selling. That rating looks at cash flow, uniqueness, EBITDA, stability and growth.
“Cash flow is king, but how you differentiate yourself is right behind it,” Mengel said. He cited an example of how a medical injection molder with $50 million in annual sales could have a higher value rating and earnings multiple than an automotive injection molder with $100 million in annual sales.
One client that worked with P&M was able to increase its equity value from $26 million to $51 million in about three years, Shuchman said.
“If your goal is to sell, you'll have a difficult time if you don't have a successor in place,” he added. “We also would advise spending money on international expansion.”