The pace of compounding-related acquisitions slowed in the first half of 2015, but seems to be picking up in the second half of the year.
The exception to the slow first-half pace was Schulman's blockbuster $800 million deal for 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. 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.
For Schulman, the deal was its 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.
“Acquiring Citadel makes us a big player in the U.S.,” CEO Rzepka said. “For quality, you have to look long-term.”
But at the same time, he acknowledged that the materials M&A market is changing. “Multiples are up, so you have to have deep pockets,” Rzepka explained.
RTP Co. of Winona, Minn., recently snagged Polymer Partners, a compounder and concentrate maker in Henderson, Ky. A destructive fire at its U.K. plant led Teknor Apex to sell related brands, assets and customer lists to local compounder Petlon Polymers. Compounder/recycler Chemical Resources Inc. of Princeton, N.J., expanded its focus by bidding $3.7 for the assets of bankrupt resin distributor Thornton & Co., although that sale has not been finalized.
A pair of cross-border deals also was completed. Israeli compounder/concentrates maker Tosaf Group bought color concentrate producer Adtec Colorant Corp. of Arlington, Texas, for an undisclosed price. Adtec specializes in color concentrates and liquid and additive masterbatches for injection molding, blow molding, film and extrusion markets.
The other international deal involved global polyolefins leader LyondellBasell Industries, which bought PP compounder SJS Plastiblends Pvt. Ltd. of Aurangabad, India. Houston-based LyondellBasell said the acquisition will enhance its position in India's growing automotive market.
The LyondellBasell-SJS deal is scheduled to close in late 2015. SJS employs almost 60 with annual production capacity of about 25 million pounds.
The most unusual compounding-related deal of 2015 so far may have taken place in Indiana, where startup color concentrates maker Precision Colors of Fort Wayne was acquired less than a year after opening its doors. The firm was acquired by Fort Wayne-based investment firm Ellis Co., which also owns Jasper Plastic Solutions, a maker of high density urethane foam products in Syracuse, Ind.
Precision employs four and is on track to post sales of $1 million in its first year of operation, making color concentrates based on polyethylene and ABS for construction, consumer and medical markets.
Many compounding and concentrate execs say their firms remain interested in making deals if they can find the right fit. Ampacet might look to Asia to make a deal or build a new facility, Fielding said. Murray added that Teknor might consider making a move in Europe.
But Techmer's Howley admitted that the M&A field is tougher now than it was just a few years ago. “There are fewer attractive opportunities out there, and multiples are at record highs,” he said.
Expansions keep pace
Several expansion projects also are proceeding across the North American compounding/concentrates sector. Penn Color hopes to break ground by the end of the year or in early 2016 on a massive 100,000 square-foot expansion of its manufacturing site in Hatfield, Pa. The $20 million project will create several new jobs, Kaminski said.
Asahi Kasei in early 2016 will open a new PP compounding plant in Athens, Ala. The exterior of the building is almost complete, track and road structures are in place and eight of 10 storage silos have been installed, according to Moyer.
In New Castle, Del., Techmer is renovating an existing building to serve as a new compounding plant. A January opening is expected, with full operations set to begin in the second quarter of 2016. The plant will replace a production site in Aston, Pa. — 20 miles north of New Castle — that Techmer acquired when it bought specialty compounder TP Composites Inc. in 2013.
Production at the Aston site was spread over several buildings, while New Castle will be all under one roof, Howley said. The new plant also will have 50 percent more production capacity than the previous location.
Teknor Apex by mid-2016 will add a new nylon compounding line at its plant in Brownsville, Tenn. The new twin-screw line will be Teknor's fourth in Manchester and will have annual production capacity of 20 million pounds. Murray said the line is needed for automotive market growth.
The coming year is looking a little brighter for compounders and concentrate makers as it approaches, with economic growth slowly building.
“The mood among our customers seems to be very upbeat,” said Van Hulle at PolyOne. “New projects are continuously entering our pipeline. These run the gamut from color refresh to groundbreaking new ideas.”
“When I look across this business and see the resources being committed to these projects by our customers, it demonstrates to me they are very optimistic about both the near and long term future.”
As for 2016, Van Hulle added that “like most years, I'm sure there will be surprises along the way.”
Next year “is a presidential election year in the United States and the ebb and flow of that process will likely dominate the news cycle and impact perceptions of the economic climate,” he said. “But in the long term, those surprises and ebbs and flows will be forgotten by what I see as continued growth and opportunity across all our geographic regions.”
PolyOne's Garratt said that cautious optimism “seems to be the predominant mood” at his unit's customers. “There doesn't seem to be a question about whether their markets will grow,” he explained. “Concerns are more squarely focused on the rate of growth.”
For 2016, PolyOne's Performance Products & Solutions unit “is looking for moderate growth in North America and continued strength in building and construction and automotive,” Garrat said.
“For Asia, the level of demand will likely fluctuate in line with recent economic changes, but we still see tremendous upside for our business,” he added.
“We have really good momentum going into 2016, and I expect that to continue,” added Nikrant at PolyOne's Specialty Engineered Materials unit. “Certainly Asia and Europe will still present challenges, but we have a strong and vibrant solutions portfolio, new applications we're working on and we've made a lot of progress in regions we've targeted for growth.”
At Asahi Kasei, Moyer is taking his direction for 2016 from his customers.
“The question for 2016 is how will global issues affect America,” he said. “But I was at a customer event not too long ago, and a lot of people there were bullish about the industry.”