Compounding M&A keeps moving during pandemic

Mergers and acquisitions activity in compounds and concentrates has continued during the COVID-19 pandemic.

"There's still a lot of M&A interest in compounding," said industry veteran Keith Rodden, president of consulting firm Compound Solutions LLC in Lebanon, Tenn. "There are more buyers than sellers. If I had five companies, I could sell all of them.

"There's a shortage of good companies," he added. "I expect interest to continue to grow."

The biggest compounds and concentrates deal of 2020 closed on July 1, when Avient Corp., formerly PolyOne, completed its $1.4 billion purchase of Clariant Masterbatches. The deal added 46 manufacturing sites and technology centers in 29 countries and about 3,500 employees to Avient's previous total. The business being acquired has annual sales of $1.1 billion.

On a late September conference call, Avient Chairman, CEO and President Robert Patterson said that the firm's post-acquisition integration efforts "are on track and very encouraging — culturally, commercially and operationally."

From a synergy standpoint, Patterson said, Avient has identified additional upside from its original $60 million estimate and now expects to achieve a run rate of $75 million in cost reductions by the end of year three. "We do not foresee synergy capture being impacted by the pandemic," he added.

Chroma Color Corp. of McHenry, Ill., completed a pair of deals in the first six months of the year. Chroma first bought fellow color concentrate maker Plastics Color Corp. of Calumet City, Ill., then added compounder and dyemaker Epolin Chemicals LLC of Newark, N.J. The PCC deal included plants in Calumet City, Ill., and in Asheboro, N.C. The Calumet City plant now has been closed.

Chroma has made three acquisitions since mid-2018, when investment firm Arsenal Capital Partners of New York combined Chroma with materials firms Carolina Color, Breen Color Concentrates and Breen's Hudson Color unit to create a larger firm.

"We're still on the trail and looking," Chroma CEO Tom Bolger said in a recent interview with Plastics News. "But we run lean, so we're not really looking to take on a struggling company and try to fix it."

In another major 2020 compounding deal, investment firm SK Capital of New York acquired a majority stake in materials firm Techmer PM LLC for an undisclosed price. Clinton, Tenn.-based Techmer makes engineered compounds and color and additive concentrates for plastics and fibers.

SK bought the majority stake from Techmer CEO and Chairman John Manuck, along with business partners Rehrig Pacific Co. and Tokyo Printing Ink. Manuck, who founded Techmer in 1981, retained a significant ownership stake.

Techmer serves global markets, including agriculture, automotive and aerospace. SK now has made four plastics-related investments in recent years, including its buy of the Performance Products and Solutions unit of PolyOne for $775 million in late 2019.

In a recent interview, Manuck credited his staff with getting the deal with SK done during the pandemic. He added that Techmer now is looking for more M&A opportunities, possibly in Europe and Asia.

"We're taking a long-range strategy to become a strong global player," Manuck said.

In September, Americhem Inc. of Cuyahoga Falls, Ohio, acquired Controlled Polymers A/S, a compounder and concentrates maker based in Ribe, Denmark. Controlled has supplied sustainable polymer solutions to some of the largest health care OEMs in the world for more than 30 years.

The Controlled Polymers deal is the fifth acquisition since 2013 for Americhem, but the company's first since 2018. In an interview, Americhem CEO Matthew Hellstern said that his firm "is always going to be open-minded about M&A, but in a thoughtful way." Any potential deal "needs to fit our strategy," he added.

Also in September, RTP Co. of Winona, Minn., acquired patents for anti-scratch additives from TenasiTech. The transaction included nanoparticle technology patents. TenasiTech is a technology firm based in Boston. No purchase price was disclosed.

RTP is planning a commercial launch of its TenasiTech Surface Protection portfolio in 2021. The acquisition of the patents is the firm's second in two years.

In an interview, RTP Strategic Planning and Acquisitions Director Jean Sirois said that his firm "is still looking" for M&A opportunities. "There's still a lot of consolidation going on and that creates opportunities," he added.

Other industry executives recently interviewed by PN also said they were keeping an eye on M&A.

Longtime industry consultant Bill Ridenour, president of Polymer Transaction Advisors Inc. in Foxfire, N.C., said his firm was working on three deals. He said the materials M&A market "could be moving away from being a seller's market for compounders" because of the number of deals completed in recent years.

"The conditions of buyers and sellers are changing," Ridenour said. "There could be a drop-off in buyers if they can't find good companies."

"There's a lot of private equity money still available, but good, smaller companies will be more difficult to find," said Suresh Swaminathan, president of Teknor Apex Co. in Pawtucket, R.I. "And you have to wonder if the effects of COVID-19 will affect companies' balance sheets."

Aurora Plastics of Streetsboro, Ohio, "will continue to look for acquisitions," CEO Darrell Hughes said. "There have been some slowdowns that have affected buyers and sellers, but things are starting to clear."

"There are still a lot of small companies in masterbatches, but the question is what their value is," said Phil Karig, managing director of consulting firm Mathelin Bay Associates LLC in St. Louis. "They might only have one or two extrusion lines, but there's an almost unlimited amount of money available in private equity."

The M&A market slowed when the pandemic first hit because it was difficult for companies to assess long-term valuations, according to Larry Shaw, chief commercial officer at Geon Performance Solutions in Westlake, Ohio. Geon is the renamed PolyOne business acquired by SK.

"You couldn't sell a company based on 2019 valuations," he said. "But now the M&A world is opening back up and there are going to be a lot of opportunities."

Other compounding deals of 2020 so far have included:

• Houston-based Ascend Performance Materials — a leading maker of nylon 6/6 resins and compounds also owned by SK — completed a pair of international deals.

The firm first acquired Italian materials firms Poliblend and Esseti Plast GD from D'Ottavio Group. The deal included a manufacturing facility in Mozzate, Italy.

Ascend followed that deal by entering the Asian manufacturing field with the acquisition of a compounding plant in China that had been operated by NCM (Changshu) Co. Ltd. and Tehe Engineering Plastic (Suzhou) Co. Ltd. The firm bought the plant, located about 60 miles outside of Shanghai.

The plant operates two twin-screw extrusion lines and has room for growth. It covers about 200,000 square feet, including warehousing space. Because of COVID-19 travel restrictions, Ascend's U.S.-based team wasn't able to visit the plant before making the deal. Company staff in Asia visited the plant.

• Thermoset molder and compounder Mar-Bal Inc. purchased Lattice Composites LLC, a Riverside, Calif.-based epoxy and polyester compounder. Mar-Bal will merge Lattice with its AltraSet Composite Technologies unit, and Lattice will move its advanced manufacturing equipment and staff to Mar-Bal's AltraSet plant in Chagrin Falls, Ohio. The deal will expand Mar-Bal's composite technologies to include Lattice's customized epoxy chemistry systems.

• Houston-based Ingenia Polymers Corp. acquired a toll compounding plant in Texas from LyondellBasell Industries. The plant in LaPorte had operated as Bayshore Industrial. LyondellBasell picked up the 100-employee plant in 2018 as part of its purchase of A. Schulman Inc. Ingenia officials said that the acquisition increases the firm's leadership in the polymer producer services market and expands its capability to serve the converter market.