Chicago — With only a few exceptions, Bain Capital executive Ken Hanau sees good things still happening in the plastics market for private equity firms.
“There are still good trends in the plastics space, like lightweighting and recycling,” Hanau said in an interview at the 2016 Plastics Financial Summit, held June 16 in Chicago.
“Plastic is still taking share from other types of packaging,” he added. “The market is still fragmented, but has a good deal of non-discretionary consumer demand. It's a good place for private equity to park money.”
This interest from Boston-based Bain and other similar firms is driving valuations up for many plastics companies.
“Public multiple are up three to four times, and you're seeing private firms go for nine times when they used to go for six or seven,” said Hanau, industrial sector managing director for Bain, a private equity giant with $75 billion under management. “There's a lot of money out there. Anyone interested in selling now might want to do so while credit markets are white-hot.”
Large amounts of new polyethylene resin capacity set to hit North America in 2017 and beyond should keep resin prices low, according to Hanau, and allow plastics firms “to continue to be aggressive vs. other materials.”
Hanau has more than 20 years of private equity experience. He joined Bain in late 2016 after a nine-year stint with the North American arm of 3i Group plc of London. While Hanau was at 3i, the firm in 2013 sold hot-runner specialist Mold-Masters Ltd. to plastics machinery leader Milacron Holdings Corp. for $970 million.
Bain's current plastics holdings include packaging giant Consolidated Container Co. of Atlanta. Consolidated ranks as one of North America's 10 largest blow molders, according to Plastics News, with annual sales estimated at more than $800 million.
Even with positive trends in plastics, Hanau said that the overall M&A market “feels like it's late cycle to me.
“Opportunities are widely available, but they can be fickle,” he explained. “You have to hit your windows. And when you exit, you have to provide differences in multiples in return.”
Part of the challenge has been exiting the recession. “We're in year seven of the expansion, but it's only year five on GDP because of slow growth,” Hanau added. “Rollups are attractive if you can buy at lower EBITDA. That sounds great, but the margin of error is thin. And you can't always build with a ton of synergy.”
Among individual end markets, Hanau said that housing “still has room to run,” but that the automotive sector “feels like it's peaked in the U.S.
“Any market touching the consumer is hanging in there,” he added.