Chicago — Plastic packaging, including caps and closures, continues to be a popular place for outside investors looking for a safe place to park their cash and earn solid returns, according to one person close to the action.
Rick Weil is managing director at Mesirow Financial in Chicago, working exclusively in specialty plastics and packaging while advising on mergers and acquisitions.
"Private equity capital has become a very, very big and important consolidator and financier to rigid packaging," such as injection molding, thermoforming and blow molding, Weil said.
"It's a very attractive space," he said at the recent Plastics Caps & Closures 2017 conference in Chicago.
The current M&A atmosphere is largely being driven by middle-market deals and is attracting interest from those traditionally outside the sector.
Weil pointed to recent deals involving Lowes Corp. purchasing Consolidated Container Co. and an investment firm associated with computer pioneer Michael Dell buying Ring Container Technologies as two examples of proof.
"Packaging clearly brings safety and stability to outsiders looking to invest in an industry. That may help explain why some of these outsiders have invested in the industry," he said.
Private equity firms are known as financial buyers, and those already in the business looking to add to their holdings are known as strategic buyers.
On the private equity side, Weil is seeing plenty of movement by these financial buyers looking to gain a foothold in the plastic packaging sector and then build a platform to create greater value for their investors.
With what some would call aggressive valuations for plastics packaging companies, these financial buyers also are considering selling off their acquisitions in a much shorter time frame than is typical in their business.
Company valuations, thanks to a robust amount of private capital available for investment, have increased in the past couple of years to the point that flipping a company more quickly than usual makes more sense than previously.
"There are so many available buyers driven by private equity and far fewer sellers of companies," Weil said at the conference organized by Plastics News.
If a company has not explored selling by this point, with the higher prices being offered, there are other considerations than money involved in the process, he said.
Investors see plastic packaging as steady business with attractive returns. The caps and closures market, for example, is expected to grow by 5.6 percent a year through 2019, Weil said.
Of course, plastics and packaging are part of a much larger M&A push in recent years. And while Weil says 2017 might not reach the level of activity seen in 2016, this is still a healthy year for deals overall.
There are more middle-market deals these days as fewer of the mega transactions are taking place, he said.
And look for continued investment in the future. Private equity had a compound annual growth rate of 11.1 percent from 2011 to 2016. That was bested by the S&P 500's 12.6 percent and real estate's 12.2 percent.
CAGR is forecasted to be 10.2 percent for private equity through 2021. And while that is a dip compared to the previous number, both the S&P 500 at a forecasted 4.5 percent and real estate at a forecasted 6.4 percent, are expected to post even lower numbers, Weil said.