Materials deals increase in first half of 2019

M&A interest in plastics materials firms remained high in the first half of 2019.

Polymer Transaction Advisors Inc. of Foxfire, N.C., has worked on three compounding deals and one recycling deal so far in 2019, according to President Bill Ridenour. The number of resin compounding deals "was up by a large percentage" in the first quarter, added David Evatz, managing director with Stout Investment Banking in Chicago.

"Buyers are looking for companies that make more highly engineered and complex compounds," he said.

The number of deals in the resin/color/compounding sector increased from 20 in the first half of 2018 to 22 in the first half of 2019, according to P&M Corporate Finance in Southfield, Mich. Those deals made up 13 percent of all first-half plastics transactions.

In a first-half materials megadeal, Saudi energy giant Saudi Aramco signed an agreement to acquire a 70 percent majority stake in petrochemicals and chemicals company Saudi Basic Industries Corp. for $69.1 billion.

The shares are being purchased from the Public Investment Fund of Saudi Arabia in a private transaction. Headquartered in Riyadh, Sabic — a major producer of polycarbonate and various specialty resins — had a net profit of $5.7 billion in 2018, on $45 billion sales.

Another multibillion-dollar materials deal saw Evonik Industries AG of Germany sell its methacrylates business to private equity group Advent International of Boston for $3.4 billion. The deal covers Evonik's methacrylates, acrylic products and CyPlus business lines as well as some methacrylate resins.

The businesses being sold cover 18 production sites and 3,900 employees worldwide, with annual sales of around $2 billion. The sale price represents a multiple of 8.5 times the businesses' EBITDA.

Evonik officials said divesting those businesses within its systematic strategy would sharpen its focus on specialty chemicals, which are less cyclical. Advent has had more than 30 financial investments in the chemical industry globally, including European packaging firms Faerch Plast Group A/S, HT Troplast and resin seller BIP Group.

Evonik also was buyer in the first half, acquiring Structured Polymers Inc., an Austin, Texas-based maker of powered polymers used in 3D printing. The deal provides Evonik access to patented technology that officials said will allow the company to expand its portfolio of specialty polymer powders in the additive manufacturing market.

In another big-dollar materials deal, investment firm One Rock Capital Partners LLC bought the resin distribution business of Nexeo Solutions Inc. in a deal worth $640 million. Chemicals distributor Univar Inc. announced plans in September to acquire Nexeo — a distributor of specialty chemicals and plastic resins — for $1.8 billion. But Univar officials soon said they didn't plan to keep the resin distribution business, which didn't mesh with Univar's existing businesses.

The divestiture is expected to result in net cash proceeds of at least $615 million, which Downers Grove, Ill.-based Univar will use to pay down debt. One Rock — based in New York and Los Angeles — currently owns 10 businesses in a variety of industries.

Industrial conglomerate Mitsubishi Corp. of Tokyo is a strategic partner in One Rock. Nexeo currently distributes engineering resins for Mitsubishi in Europe.

A first-half trend saw three North American PET resin makers each make a recycling acquisition. Indorama Ventures Public Co. Ltd. of Bangkok acquired an Athens, Ala., PET recycling facility from Custom Polymers PET LLC. That location recycles PET pellets and flake with two lines that have a combined capacity of almost 70 million pounds tons per year.

Custom Polymers was listed as the eighth-largest plastics recycler in North America in the most recent Plastics News ranking. Indorama already has recycling operations in Mexico, Thailand and Europe.

PET makers DAK Americas LLC then acquired a large PET recycler in eastern Indiana. Charlotte, N.C.-based resin maker DAK has "an asset purchase agreement" with Perpetual Recycling Solutions LLC, which operates a 100 million-pound per year recycling facility in Richmond, Ind.

Perpetual processes post-consumer bottles and food containers into recycled PET flake. DAK is a unit of Alpek SAB de CV of San Pedro Garza García, near Monterrey, Mexico.

The third PET resin-recycling deal took place when Taiwan's Far Eastern New Century Corp. bought PET recycler Phoenix Technologies International LLC, which has a processing site in Bowling Green, Ohio. Phoenix can process 80 million pounds of material each year.

Prior to the sale, Phoenix shared common ownership with PTI, formerly known as Plastic Technologies Inc., a research and development firm specializing in the PET market and based in nearby Holland, Ohio.

Aside from those deals, plastics buyers weren't much interested in low-margin recyclers in the first half, according to Andrew Petryk, managing director with Brown Gibbons Lang in Cleveland. He added that high-quality compounders and chemical suppliers "still get good attention."

One of the more talked about materials deals of the first half was one that didn't happen. Chemical and plastics giant LyondellBasell Industries ended discussions with Braskem majority shareholder Odebrecht SA concerning a potential acquisition of Braskem, Brazil's leading petrochemicals firm.

Citing unnamed sources, Reuters reported in March that negotiations over the potential $11 billion deal for Braskem had slowed due to "issues linked to a delayed U.S. filing and a supply contract for naphtha with Petrobras." The two sides had been in talks over the sale of Braskem for more than a year.

Other notable first-half plastics materials deals included:

• Materials maker Chroma Color Corp. grew by acquiring Polymer Concentrates Inc. of Clinton, Mass. Officials with McHenry, Ill.-based Chroma said that the deal allows their firm "to grow its manufacturing footprint, along with its suite of colorant and additive technologies to better serve existing and prospective customers."

PCI is privately held and develops and manufactures color concentrates for the international plastics industry. Private equity firm Arsenal Capital Partners has added several other color firms to Chroma in recent years.

The Arsenal-Chroma approach might become more common, according to Phil Karig, managing partner of Mathelin Bay Associates in St. Louis. "We might see a lot more hybrid companies like Chroma, where they become a strategic buyer of sorts."

• DowDuPont Inc. sold the European arm of its Styrofoam-brand extruded polystyrene insulation business, including seven production plants, to materials supplier Ravago Group. The divestment includes all XPS operations at plants in Turkey, France, England, Greece, Sweden and two in Germany.

• Ravago continued its buying spree when its Ravago Holdings America Inc. unit bought H.B. Chemical Inc. Based in Twinsburg, Ohio, H.B. Chemical is a North American distributor for the rubber industry that also distributes plastic additives such as plasticizers and antioxidants.

• In another resin distribution deal, Marco Polo International Inc. and Global Plastics LP merged and took on global trading firm Itochu International Inc. as a partner. The combined firm will operate as MGI International LLC. Marco Polo of Melville, N.Y., and Global of Manchester, N.H., will continue to sell and operate under separate brands. MGI's headquarters will be in Melville.

Itochu, a Tokyo-based global trader of chemicals, minerals and many other products, will own "a significant minority stake" in MGI, officials added. In an email to PN, MGI officials said the combined firm will employ more than 100 and distribute almost 1 billion pounds of resin annually.

Officials added that MGI will do about 70 percent of its sales in polyethylene, with 25 percent from polypropylene and the remainder from other commodity and engineering resins. About 70 percent of the firm's sales will be in North America.

• Private equity firm Charter Oak Equity LP invested in materials company Chemres LLC. The two firms announced the recapitalization of Chemres in late January. Princeton, N.J.-based Chemres operates in compounding and related services, selling mainly into medical, packaging and wire and cable markets.

• Materials firm Aurora Plastics LLC made its fourth acquisition in the last two years by purchasing Elastocon TPE Technologies Inc. of Springfield, Ill. No purchase price was included in an April 15 news release from Streetsboro, Ohio-based Aurora. Company officials said in the release that the acquisition of Elastocon "continues to expand [Aurora's] comprehensive product line, bringing broader TPE compounding capabilities to the company's portfolio."

• Global resin and chemicals supplier Vinmar International Ltd. acquired Alpheus Enterprises of Mexico City for an undisclosed price. Products distributed by Alpheus include polyethylene and polypropylene resins made by Formosa Plastics Corp. USA and rigid PET and PVC sheet made by Nan Ya Plastics Corp. USA. The firm also supplies plastic film and off-grade and recycled resins. Alpheus was founded in 1996 by the Fong family.

• Polyscope Polymers BV, a Dutch maker of styrene maleic anhydride (SMA) copolymers, completed its purchase of Total SA's SMA business, Cray Valley. The deal includes the transfer of all SMA products, inventory, application knowledge, and intellectual property from Cray Valley.