PolyOne sells PP&S unit to SK Capital in $775M all-cash deal

In a major compounding deal, PolyOne is selling its Performance Products and Solutions unit to SK Capital Partners for $775 million in cash. That unit includes one of North America's largest PVC compounding businesses.

PP&S posted sales of almost $700 million last year, representing about 20 percent of total sales for Avon Lake, Ohio-based PolyOne. The unit also makes polypropylene-based compounds and provides contract manufacturing. It sells mainly into North American construction and automotive end markets.

SK is a New York-based private equity firm. It has become a major player in plastic additives through its acquisitions of part of Chemtura in 2013 and of SI Group last year. SK had operated the Chemura businesses as Addivant. The combined additives firm operates as SI Group.

Several compounding market watchers contacted by Plastics News weighed in on the deal. Kevin Hocevar, a stock analyst who covers PolyOne for Northcoast Research of Cleveland, said in an email that his firm "wasn't totally surprised by the move."

"PolyOne has been focused on its more specialty businesses and has seemingly been very focused on growing the composites side of the business," he added. "PP&S is more cyclical, less specialty, more exposed to slowing end markets (U.S. housing, automotive) and we believe PolyOne has done what it can to make the segment more specialty by growing in applications like health care but it probably was never going to become as specialty as its [global colors and specialty materials] businesses.

"So the time was probably right to move on," he said. "PolyOne will now have a lot of cash to play with to grow these specialty businesses, which we think is a good thing."

With the PP&S sale, PolyOne is continuing to follow its recent strategy of "bringing onboard high-margin businesses" such as ColorMatrix while spinning off lower-margin businesses such as their mainly commodity compounding assets in PP&S, according to Phil Karig, managing director of the Mathelin Bay Associates consulting firm in St. Louis.

"Given the current high [earnings before interest, taxes, depreciation and amortization] purchase price multiples for plastics industry acquisitions, and the likelihood that we may be nearing the end of the current economic up-cycle, now is arguably a good time to be selling at what may be peak prices," he added.

Keith Rodden, owner of Compound Solutions LLC in Lebanon, Tenn., said that the PP&S sale "should be good news for all parties." He explained that PolyOne benefits from the cash infusion and resulting ability to invest in and grow its core business, while SK "has experience with carve outs and has significant investment in plastics with Ascend and the additives businesses."

Rodden also said that PP&S customers and employees will benefit from the transition from a noncore to a core business.

"I believe there is significant opportunity to grow the business [SK] has acquired," he added.

Bill Ridenour of Polymer Transaction Advisors in Foxfire, N.C., said that he wasn't surprised by the deal either. He added that Aurora Plastics — a compounding business owned by private equity firm Wind Point Partners of Chicago — may have been a bidder for the PP&S unit. Aurora has made four acquisitions in less than three years.

Ridenour also said that the sale price for PP&S didn't seem exceedingly high given the heightened state of the current M&A market.

"I think [PolyOne] got what they could for it," he added. "They've been shedding businesses that are noncore and this one might have been the most difficult to sell because of its commodity status."

The deal is scheduled to close in the fourth quarter of 2019.

In 2018, sales at PP&S were up more than 2 percent, but the unit's operating profit declined by more than 4 percent. The business being sold employs around 1,100 worldwide.

The acquisition includes eight U.S. plants: Carson, Calif.; Terre Haute, Ind.; Louisville, Ky.; Clinton and Dyersburg, Tenn.; Pasadena and Seabrook, Texas; and Avon Lake. It also includes Canadian plants in Orangeville, Ontario, and St. Remi de Napierville, Quebec; as well as plants in Ramos Arizpe, Mexico, and Dongguan, China.

A PP&S plant in Lockport, N.Y., is not included in the deal. A PolyOne spokesman said that plant now will be used to make other PolyOne products. The spokesman added that company officials will address the sale in more detail on the firm's third quarter conference call.

The PP&S business includes Geon-brand PVC compounds, which are one of PolyOne's oldest legacy businesses. The materials first were made by rubber supplier B.F. Goodrich, which launched production of PVC resin and related compounds and end products in the 1920s before it began selling the materials to outside customers in the 1940s.

Goodrich spun off Geon as a separate business in 1993, with the firm later divesting its PVC resin business. Geon then merged with Cleveland-based M.A. Hanna Co. — a longtime mining firm that had transitioned into plastics — in 2000 to form PolyOne.

When the deal is finalized, four different companies will be making materials at the original Goodrich site in Avon Lake as the result of a series of acquisitions: PolyOne, SK, Mexichem and Lubrizol.

SK also has owned global nylon 6/6 production leader Ascend Performance Materials of Houston since 2009. The firm's portfolio of businesses has annual sales of about $8.5 billion annually, employing more than 9,000 globally at 74 plants.

PolyOne CEO Robert Patterson said that, in the short term, proceeds from the sale will be used to pay down debt on PolyOne's revolving line of credit and reduce its overall net debt.

In 2018, PolyOne had sales of about $3.5 billion. The firm employs almost 6,900 worldwide.