Strong 2014 deal volume is expected to keep rolling in 2015 for the plastics mergers and acquisitions market.
“There's significant demand for high-quality acquisition targets,” financial pro Ed Nichols said April 21 during a webinar co-hosted by financial firm Stout Risius Ross Advisors LLC of Chicago and by the Manufacturers Association for Plastics Processors (MAPP), an Indianapolis-based trade group.
Nichols — head of SRR's packaging practice — added that deal demand “is strong across all plastic sectors” and that private equity firms have $350 billion of “dry powder” — essentially money looking for a way to be spent.
Larger factors also make 2015 fertile soil for M&A, especially in the U.S. Nichols explained that equity markets and implied valuation multiples “are near all-time highs” and that the U.S. economic outlook is strong, while consumer confidence and unemployment rates “are improving.”
“The U.S. remains the favored place for deal activity,” he said. “GDP has recovered from the contraction of late 2008 and early 2009.”
SRR investment banking managing director David Evatz added that 2014's total of 384 plastics M&A deals was up more than 3 percent vs. 2013, and that level “is expected to continue across all segments and processes.”
In the U.S. auto market, Evatz said that the “magic benchmark” of 17 million builds was reached in 2014 and that builds in 2015 and 2016 should be between 17 million and 18 million.
The auto segment showed the largest M&A growth in 2014, with the number of deals up 76 percent, according to SRR data. “We're in a good point in the automotive cycle from the M&A perspective,” Evatz said. “There are a number of years left in the upcycle of the auto market.”
The number of plastics packaging M&A deals grew 23 percent in 2014, and that sector continues to consolidate. The number of prototyping deals more than doubled, while blow molding deals grew 82 percent. Tool and die deals also showed 36 percent growth.
The compounding sector “has seen lots of strategic and private equity activity — and we expect that activity to continue at a high level,” Evatz said.
For deal valuations, deals involving medical plastics continued to command the highest multiples, while auto deals saw the lowest multiples, in spite of their increased number. “You can argue that valuations are as high or higher than they were before the recession,” Evatz said.
Nichols added, however, that higher valuation multiples — and the pressure that accompanies them — are causing deals to take longer to close. “There are more dollars chasing fewer deals,” he said. “That's why we see strong multiples.”
The global plunge in oil prices — and its effect on resins and feedstocks — since mid-2014 “is a meaningful value driver at end of day,” according to Nichols. “If you can pass those changes through, it creates more stability and increases value,” he said.