Naples, Fla. — So far in 2017, the rate of plastics mergers and acquisitions is cruising along at the strong levels seen in 2016.
“Multiples paid for plastics companies continued to remain high in 2016,” financial pro Jason Bean said at the 2017 Plastics News Executive Forum, March 28-29 in Naples. Bean is M&A manager at the Douglas Group consulting firm in St. Louis.
“Companies are under pressure to improve efficiency and profit in a slow-growth economy, and plastics has shown continued strength,” he said. “As a result, plastics M&A has seen tremendous growth. There's still a lot of interest in plastics companies.”
Bean cited customer growth, market access, technology advancement and a need to cut costs as reasons that plastics companies participated in the 2016 M&A market. He added that, historically, plastic firms have seen multiples of four to six times earnings when sold, but coming out of 2016, the market was seeing multiples of six to nine times.
“Good, healthy companies can get multiples of seven to eight,” he said. “Medical companies can get nine to 10 or beyond.
“Companies are using a buy vs. build strategy, and they're using M&A to help with that,” Bean explained. “Some companies are using M&A to enter a new line of business or to defend themselves vs. their competition.”
On the financial side, Bean said that debt “is cheap right now, and even if interest rates were to go to 4, 5 or 6 percent, that's relatively cheap.” He expects private equity buyers to remain active in the plastics market, although recently strategic buyers have been just as active.
“Private equity has a lot of money to put to work,” he said.
Globally, buyers and sellers are looking to the United States for deals as other countries slow down a little bit, Bean added. And if proposed U.S. tax reform is successful, plastics owners might be tempted to hold on to their companies a little longer. If not, some might look to exit.
Overall, plastics deal activity is expected to be steady in 2017, Bean said, with continued interest in packaging, medical, consumer, food and beverage and aerospace. But sometimes deals go beyond the numbers.
“It has to be the right fit for the owners,” Bean said. “They want to find a buyer who's going to make sure the culture they've put in place stays there.”
