First-half plastics M&A has played out against a backdrop of U.S. GDP growth of around 2 percent, and with the Dow Jones Industrial Average up almost 3 percent through June 30. This would appear to be moderate economic growth at best, but it's better than results in some other parts of the world.
Prices for West Texas Intermediate Oil began the year around $40 per barrel, then fell below $35 but were near $48 as the first half ended — a six-month increase of about 20 percent. North American resin prices haven't seen as much volatility, which has been good for plastics processors in the region.
The U.S. housing market has been solid, with May construction at an annual rate of 1.16 million units — up more than 9 percent vs. the same month in 2015. Through May, North American auto production was up almost 4 percent vs. the year-ago period to almost 7.7 million vehicles. That's slightly ahead of the 3.3 percent growth rate that the category showed for full-year 2015.
The first-half plastics M&A market has been particularly busy for Molding Business Services in Florence, Mass. “The market continues to be very hot,” owner Terry Minnick said. ”We've closed five transactions in the first half, have three more deals under letters of intent and have eight full-broker deals on our plate.”
David Evatz, managing director at Stout Risius Ross Advisors LLC in Chicago, agreed that deal activity has been picking up in recent weeks. “A lot of factors are combining to create a strong market,” he said. “We've got good capital markets and active strategic and financial buyers.”
“We're seeing new deals every few days,” said Rick Weil, managing director at Mesirow Financial in Chicago. “The market continues to be very strong and active and there continues to be money chasing deals.
“Anyone remotely thinking about selling their company, is,” he added. “This is the strongest I've seen it in the 16 years that I've been in this market.”
Others were optimistic but a little cautious. “The first quarter was slow overall, but that might shift in the third and fourth quarter,” said Ben Whiting, plastics team leader with KeyBanc Capital Markets in Cleveland. “Industrial end markets might be close to a cyclical peak.”
“There are a lot of buyers out there, but for the first time in a long time, it feels like plastics M&A might be a little fished out,” added Bill Ridenour, president of Polymer Transaction Advisors in Foxfire, N.C. “There aren't as many categories available as there have been in the past.”
Top markets attract deals
The packaging, medical and automotive markets continue to be areas of emphasis for plastics M&A.
“Packaging is more fragmented, but it tends to be insulated from some of the ups and downs of the market,” said Thomas Blaige, chairman and CEO of Blaige & Co. in Chicago.
“We've seen a lot of growth in packaging,” added Evatz at SRR. “Plastic is still replacing other materials there. Consolidation is continuing — but it's a large segment.”
Several financial pros cited Stone Canyon Industries' $2.4 billion purchase of plastic and metal container maker Bway Corp. of Atlanta as a standout first-half packaging deal. Bway was sold in June by private equity firm Platinum Equity LLC to Stone Canyon, which owns a broad portfolio ranging from railroad equipment to women's apparel.
Platinum had acquired Bway for $1.24 billion in 2012 from Madison Dearborn Partners LLC and bolted on Ropak Packaging, a maker of rigid plastic shipping containers, within a matter of months in a $265 million transaction. Bway makes a variety of plastic containers for the industrial, bulk food and retail markets. They include pails, buckets, drums and dairy containers.
Blaige also cited Novolex acquiring Heritage Bag Co. as an example of a firm trying to consolidate in both plastics and paper packaging. Heritage operates six plants, making plastic trash bags, can liners and food bags for institutional and commercial customers. The company's product portfolio also includes items such as medical waste bags and ice bucket liners.
The medical plastics market remains strong, generating a lot of interest because of its non-cyclical results, according to Whiting at KeyBanc. The medical sector “has seen less of a pullback than traditional industrial businesses,” he said.
PTA's Ridenour added that the medical sector “isn't under a lot of price pressure,” since some products “are propped up by government programs.” He cited personal care and pharmaceuticals as “top targets” in the medical space.
“If anything, medical has picked up and is continuing to grow,” said Weil at Mesirow. “Demographics are working in [medical's] favor.” Medical companies also “are trading at higher levels vs. other segments,” according to Evatz.
Medical injection molder Phillips-Medisize Corp. of Hudson, Wis., was cited as an active player in the field, making two deals in June. On June 1, the firm bought European drug delivery firm Medicom Innovation Partner A/S. Officials said that the addition of Medicom will expand Phillips-Medisize's end-to-end injectable and inhalation device and services offerings and offer a chance to tap into Medicom's technology accelerator programs.
Then on June 30, Phillips-Medisize said that it was extending its manufacturing capabilities to the Northeastern U.S. by acquiring Injectronics Inc., which has two Massachusetts facilities. Clinton, Mass.-based Injectronics provides contract engineering and manufacturing for consumable diagnostics and medical device customers.
Automotive plastics firms continue to draw interest, even though there's a growing feeling that the market may have peaked as far as production.
“Auto is at the top of the curve and might see some pullback,” Whiting said. “Cars are manufactured to last longer because they're being built of better materials — including plastics.”
“Interest in automotive injection molders remains high in the U.S., even as some work shifts to Mexico,” Evatz said. “Some North American injection molders want to buy Mexican operations,” he added.
Petryk at BGL contends that the auto market might have some staying power. “There's still a lot of interest there,” he said. “Those [production] numbers might be peaking, but they're not expected to go down that much.”
The plastics machinery market drew some first-half attention in January when state-owned China National Chemical Corp. — known as ChemChina — paid just over $1 billion for global giant KraussMaffei Group. ChemChina officials called KM “the Rolls-Royce” of the polymer machinery industry.
Toronto-based private equity firm Onex Corp. had owned KM since 2012. ChemChina said the purchase is the single largest investment that a Chinese company has ever made in Germany. ChemChina's existing machinery subsidiary — China National Chemical Equipment Co. Ltd. — and KM have complementary product portfolios and markets.
In it for the money