After several years of strong growth, concerns about the economy could slow down plastics mergers and acquisitions activity in the second half of 2022.
P&M Corporate Finance of Southfield, Mich., tracked 197 plastics and packaging deals in the first half of 2022. That's down 20 — about 9 percent — from the first half of 2021, but still more than in any half from 2017-20.
In spite of that downturn, the number of deals in the construction end market jumped 46 percent (from 13 to 19), while the number of industrial deals increased 21 percent (from 77 to 93).
By manufacturing sector, specialty deals — including packaging machinery, rotational molding and pipe extrusion — increased 40 percent, from 48 to 67. Sheet and thermoforming deals also grew 42 percent, from 12 to 17.
Economic challenges exist in the form of high inflation and rising interest rates. Inflation for the 12 month period ending in May in the U.S. was at 8.6 percent, the highest rate recorded since December 1981. The federal funds interest rate began the year at 0.25 percent but had risen to 1.75 percent by June 15. The Federal Reserve on that date approved a 0.75 percent hike, the largest since 1994.
The rate now is the highest it's been since early 2020, when the COVID-19 pandemic led officials to reduce the rate to boost the economy. The Fed has been increasing the rates in an effort to tame inflation.
Low U.S. unemployment rates also have made it difficult for plastics processors and many other firms to find enough workers. The unemployment rate for May was at 3.6 percent, almost exactly where it was in January 2020, right before the pandemic began. Unemployment peaked at almost 15 percent in April 2020, but the economy recovered quickly, lowering the rate to less than 7 percent by the end of 2020 and just under 4 percent by the end of 2021.
High fuel and energy prices have affected the economy as well. U.S. gasoline prices were above $5 per gallon in mid-June and were at $4.88 on June 28 — up almost 58 percent over that date in 2021. WTI crude oil prices closed at $109.60 per barrel on June 27, up 43 percent since the start of the year. U.S. natural gas prices were at $6.50 per million btus on June 27, up 70 percent since the start of the year.
On Wall Street, the Dow Jones Industrial Average was near 31,700 on June 28, down about 13 percent from the start of the year. The broader S&P 500 was at 3,900 on that date, down almost 19 percent in the same comparison. U.S. GDP declined 1.4 percent in the first quarter and is projected to grow 2.3 percent in the second quarter. By comparison, GDP grew 6.9 percent in the fourth quarter of 2021 and 5.7 percent for the full year.
2021 "was an absolute record year for plastics and packaging M&A," PMCF Managing Director John Hart said. "We thought 2022 would level off a bit, but it stayed elevated in the first quarter. Then in the second quarter, we've seen some decline in foreign deals, but it's still strong.
"There's a lot of concern on the horizon, because of the impact of inflation and interest rates and the stock market, but as of now, we haven't seen a pullback," he said.
"So far, we're seeing activity remain strong and consistent with the last quarter of last year," added Matt Miller, managing director of BlueWater Partners LLC in Grand Rapids, Mich. "But more headwinds are gathering."
Plastics News recently checked in with Hart and other financial experts to measure their concern and their views on other trends.