Chicago — Private equity looks to be a big factor in plastics mergers and acquisitions for the foreseeable future.
After averaging 93 global plastics deals a year from 2005-2007, private equity firms were involved in an average of 125 plastics deals a year from 2010-2015, financial pro John Hart said June 16 at the Plastics Financial Summit in Chicago.
Hart, managing director of P&M Corporate Finance in Southfield, Mich., led a panel of private equity veterans Russell Greenberg, Ken Hanau and Adam Piatkowski.
“Private equity is one of the key options we look at when taking a business out to sell,” Hart said. Greenberg, managing partner of Altus Capital Partners of Wilton, Conn., said that plastics firms give private equity companies “an opportunity to take small businesses and grow them.”
Hanau, managing director of Bain Capital Private Equity in Boston, added that private equity firms like to invest in plastics companies because they're often in consumer markets with nondiscretionary spending and, as a result, tend to be less cyclical. Plastics firms “allow you to park your money in a safe way,” he said.
And although many plastics firms are maturing, they still have room for “innovation that drives growth,” according to Piatkowski, managing principal of Graham Partners in Newtown Square, Pa.
“There have been a lot of advancements in barrier properties and design,” he added. “And manufacturing flexibility is important, because product life cycles are shortening.”
Altus, Bain and Graham all have made plastics investments in recent years. But Hanau cautioned that the current plastics M&A market “feels very full” because of higher multiples that are being paid.
“It feels as frothy as did in 2007,” he said. “Private equity has raised valuations across the board. I don't know if that's a good thing.”
In spite of these higher valuations, Greenberg said that Altus “won't pay when there's too much heavy lifting to do to invigorate a business.”
The increasing ages of plastics business owners might be creating opportunities for private equity investment.
“A lot of owners are in their 60s and 70s have succession issues,” said Piatkowski, adding that two-thirds of the plastics businesses that Graham invests in are family owned.
Greenberg agreed, saying that in plastics, there are “a lot of owner-operators who need to sell for succession reasons, and that's attractive to private equity.”