Financial pros have remained busy with merger and acquisition deals in the compounding and concentrates market in 2018.
Compounders and concentrates makers "are still attractive in M&A," said Keith Rodden, an industry veteran who opened consulting firm Compound Solutions LLC in Lebanon, Tenn., earlier this year. "Selling prices for independent compounders are as high as they've ever been.
"If you have sales of between $40 million and $100 million per year, you can find a broker to take your company to market," he added. "And resin makers are buying compounders as a downstream outlet for their materials. That makes sense if it's managed properly."
A standard compounding firm might be able to sell for five to six times earnings, according to Thomas Blaige, chairman and CEO of financial firm Blaige & Co. in Chicago. Compounders doing "specialty or exotic" work could sell for as much as 12 to 15 times earnings, he added.
"A lot depends on a compounder's ability to identify and research new materials," Blaige said. "There are still more hidden gems out there."
Some compounders "are trying to globalize into areas they're not participating in," according to Bill Ridenour, president of Polymer Transaction Advisors Inc. in Foxfire, N.C. "The specialty end of the business is a good place. There are good profit margins in areas like medical and pharmaceutical."
He added that many compounders and private equity firms now have more funding available for M&A, which is driving deal multiples up and resulting in higher-value deals.
The headline compounding/concentrates deal of 2018 has been materials giant LyondellBasell Industries' $2.25 billion acquisition of global compounding and concentrates leader A. Schulman Inc. That transaction created an industry-leading compounding business with combined sales of $4.6 billion.
Other notable compounding/concentrates deals:
• Compounding and distribution firm PolyOne Corp. is keeping its pattern of deal-making active with two deals. Avon Lake, Ohio-based PolyOne in January acquired IQAP Masterbatch Group SL, a privately owned specialty colorants and additives maker with customers throughout Europe. Then in June, PolyOne snagged composites maker PlastiComp Inc. for an undisclosed price.
• Celanese Corp. of Dallas also stayed active in compounding acquisitions by purchasing Omni Plastics LLC of Evansville, Ind. Celanese now has made four compounding acquisitions since 2014.
• Israeli materials firm Kafrit Industries Ltd. acquired Polyfil Corp., a maker of masterbatch concentrates based in Rockaway, N.J. Market sources placed the purchase price at $36 million.
• Global colorant provider Chromaflo Technologies bought the colorants unit of Central de Colores Plásticos (Cecoplas) of Querétaro, Mexico. Chromaflo has been owned since late 2016 by private equity firm American Securities LLC of New York.
• Petrochemicals maker Westlake Chemical Corp. of Houston acquired global compounder Nakan from OpenGate Capital in a $265 million all-cash deal. Nakan is based in Reims, France, and has eight production facilities: four in Europe, three in Asia and one North American plant in Mexico.
Nakan has annual sales of about $300 million. Its compounds are used in a wide variety of applications, including automotive, building and construction, and medical.
• Nylon 6/6 leader Ascend Performance Materials purchased Britannia Techno Polymer BV, an engineering plastics compounder based in Tilburg, the Netherlands.
• Private equity firm Arsenal Capital Partners acquired specialty polymers maker Polytek Development Corp. for an undisclosed price. It's the 25th plastics-related deal for the New York City-based firm since 2012. Arsenal is acquiring Easton, Pa.-based Polytek from private equity firm Morgenthaler Private Equity of Cleveland. Polytek's proprietary specialty polymers, including polyurethane elastomers and silicones.
• Arsenal in July used its Carolina Color unit to acquire Chroma Corp. of McHenry, Ill. It then combined Carolina Color, Chroma and two other similar firms under the Chroma Color Corp. name.
• Details are still emerging on Clariant AG's plans to sell off its global pigments, standard masterbatch concentrates and medical specialties businesses that have annual sales of around $1.5 billion. Muttenz, Switzerland-based Clariant announced the move Sept. 18, the same day that it announced it was combining parts of its masterbatch and additives businesses with some plastic materials product lines owned by Saudi Basic Industries Corp.
• Compounders and concentrates makers also will be affected by a deal that created a major plastics additives player. That happened when private equity firm SK Capital Partners bought SI Group and announced plans to combine it with its own Addivant business. SI's product lines include plasticizers, flame retardants and antioxidants. SI has more than $1 billion in annual sales.
SK formed Danbury, Conn.-based Addivant in 2013 after acquiring the antioxidant and light-stabilizer business of Chemtura Corp. Addivant has estimated annual sales of more than $500 million.
