Demand is growing for small- and mid-cap plastics processors, according to an investment banker who specializes in plastics deals.
"There's a growing number of consolidators, they are looking to create demand for these thousands of mid-cap and small processors and converters," said Thomas Blaige, chairman and CEO of Chicago-based Blaige & Co.
Blaige discussed the challenges processors face and strategies for strengthening their business in a recent webinar hosted by Plastics News.
Blaige said plastics processors are in high demand, especially from private equity investors.
"Most owners who have a private equity offer think they've got it made," Blaige said. "But they don't realize there are 14,000 funds out there with private equity firms just in North America, and there are 4,000-5,000 publicly traded companies, which have public capital, just in the U.S."
The number of public companies has been roughly cut in half since the 1990s as a result of consolidation and buyouts by PE investors.
The market is moving from large-cap processors to smaller and mid-cap firms, and Blaige predicts higher valuations for smaller companies.
Blaige said smaller processors are facing issues that they can turn into advantages if handled properly.
Customers are beginning to demand suppliers with scale, which can be a risk to smaller and mid-cap processors. Smaller companies that don't have the capability to go global or expand can be left behind.
"A lot of OEMs are looking for multiple processes, they want more capabilities and solutions. Processors who are aggregating processes and capabilities are winning," Blaige said. "That's a huge advantage, which can be hard to compete with."
A push for environmental, social and governance investing will also put pressure on smaller processors, he said. That will impact company valuations.
Blaige also discussed succession planning, which can become a problem for family-owned companies if younger generations are not interested in manufacturing.
"To keep up with the other factors — meeting scale, having horizontal and vertical integration and complying with ESG — that's all requiring scale and capital," Blaige said. "Should family business, second or third generation, bet the farm or [should they] find a financial and strategic partner?"