Bain Capital Private Equity, a PE giant and frequent plastics investor, still sees a lot of value in the plastics market.
“The plastics space has been a good one, and it's only heated up,” industrial sector managing director Ken Hanau said in a recent interview with Plastics News. “There's an emerging middle class in many parts of the world and people are still interested in lightweighting. And we're still seeing flexible packaging taking market share from rigid.”
Hanau joined Boston-based Bain in 2016 and has more than 20 years of private equity experience. He added that he expects private equity to continue to invest in plastics, even as the U.S. economy might be in the late stages of a long bull market.
“Private equity likes to roll in late in the cycle,” Hanau said. “It helps them sleep better at night.”
The amount of capital coming into plastics from many sources — including family offices — is driving demand for plastics acquisitions, Hanau said. And this level of demand is impacting valuations of plastics firms by driving multiples and selling prices higher, he added.
Those higher multiples, however, in some deals seem to be favoring private equity buyers over strategic ones. “The reality is that we're getting to the point where strategics are having a hard time competing on some of these deals,” Hanau said.
“There's an interesting set of dynamics now,” he added. “The U.S. economy remains robust and banks are lending aggressively, but there's still high probability of a recession.”
Bain's continued interest in the plastics space is a result of previous positive deals. The firm bought U.S.-based packaging giant Consolidated Container for 7 times earnings in 2012, then sold it for 9 times earnings in 2017. In dollar terms, that meant Bain paid $800 million and sold for $1.2 billion.
Bain's current plastics-related holdings include cosmetic packaging maker World Wide Packaging LLC of Florham Park, N.J. — which it acquired earlier this year — and Innocor, a maker of polyurethane foam products based in Red Bank, N.J.
RPC Group plc — a leading global plastics packaging firm based in the United Kingdom — also confirmed earlier this month that it's in preliminary discussions with Bain and with Apollo Global Management of New York over two possible buyout offers.
“Now people are digging for high-quality packaging assets,” Hanau said. “There's no shortage of demand for properties.”
Recent U.S. tax reform has provided short-term stimulus and increased investment in some plastics sectors, according to Hanau. But recent public criticism of plastics and their effect on the environment might also have an impact.
“The perception of these [negative] images could get in investors' heads,” Hanau said. “It makes you wonder about beverage packaging. But I think there will be progress on recycling in the long term.”
Even with these concerns, investor interest in plastics should remain strong in the near future. “Until there's a pull back in capital markets and in the macro market, we're going to see a ton of liquidity in the marketplace,” Hanau said. “And we should see high multiples until it runs its course.”