After tracking 37 deals in resin, color and compounding in the first half of 2014, P&M Corporate Finance of Southfield, Mich., found only 26 such deals in the first six months of 2015 — a drop of 30 percent.
But financial pros contacted by Plastics News said that there's still a lot of interest in the sector, even if it's getting hard to find assets to buy.
“The decline in materials deals in the last year has been because of a scarcity of opportunities,” said David Evatz, investment banking managing director with Stout Risius Ross Advisors LLC in Chicago.
P&M's John Hart and Bill Ridenour at Polymer Transactions Inc. in Newbury, Ohio, both said the materials sector still remains attractive for plastics M&A buyers. Hart added that he expects 2015 to eventually be as strong as 2014 was.
One of the deals completed in the first half of 2015 was A. Schulman Inc.'s $800 million blockbuster purchase of Citadel Plastics Holdings Inc. That deal nearly doubled Schulman's U.S. compounding sales and gave the firm a solid presence in thermoset compounds.
Citadel posted sales of $550 million in 2014, employing 1,200 at 21 plants. The company was founded in 2007 by private equity firm Wind Point Partners of Chicago, which then grew the business through several acquisitions before selling it to Palo Alto, Calif.-based HGGC — another private equity firm — in 2012.
West Chicago, Ill.-based Citadel had earnings before interest, taxes, depreciation and amortization of $75 million in 2014. That means the sale price has a healthy earnings multiple of 10.7.
Citadel generated 55 percent of its 2014 sales from Engineered Plastics — primarily compounding — and the remainder from Thermoset Composites. Its 2014 sales total was up almost 5 percent vs. 2013. The U.S. and Canada accounted for 86 percent of Citadel's sales last year.
For Fairlawn, Ohio-based Schulman, the deal is the 11th acquisition or joint venture in less than six years, but is by far the largest. The firm spent less than $600 million combined on the previous 10 deals, with the largest being its 2010 acquisition of ICO Inc. for almost $200 million.
“Now we can be a player in the U.S.,” Schulman CEO Bernard Rzepka said when the deal was announced in March. “We can be a very serious partner in supply and customer intimacy.”
Market watchers approved of the deal, with Northcoast Research market analyst Kevin Hocevar saying that “a company of Citadel's size doesn't come along every day.”
Mario Toukan — managing director and chemicals practice head with KeyBanc Capital Markets, the Cleveland-based financial firm that represented Citadel in the deal — added that Schulman “wanted more of a North American presence, and Citadel brought that to them.”
Citadel itself had been involved in eight deals since its formation in 2007, most recently, in October buying the Composites Group, a thermoset compounder and molder based in Highland Heights, Ohio.
PTA's Ridenour suggested that part of the slow first half for materials in 2015 may have been the result of Schulman slowing down its acquisition pace after buying Citadel.
In addition to Schulman's 11 recent deals and Citadel's eight, North American compounding leader PolyOne Corp. of Avon Lake, Ohio, has made three major acquisitions and several smaller ones in recent years, further reducing the amount of materials targets now available.
Other materials deals in the first half of 2015 included:
• Chinese firm Shanghai Pret buying Wellman Recycling for $70 million.
• Resin distributor M. Holland Co. forming a partnership with Mexican distributor Grupo Solquim.
• Sun Plastech buying fellow purging compound maker Novachem.
• Westlake Chemical Corp. buying out a partner in Chinese PVC maker Suzhou Huasu.
• J.M. Huber acquiring flame retardant technology from Floridienne Group.
