Long known as a "fragmented" segment of the industrial supplier market, the plastics industry's—in particular processors and mold manufacturers—recent M&A activity is signaling that the industry is ripe for consolidation. Recent examples include Husky buying moldmaker KTW ; Jabil buying Nypro ; Milacron buying Mold-Masters ; and Balda AG purchasing molding and moldmaking firms C. Brewer and HK Plastics Engineering .
There are likely several reasons for this sudden burst of M&A activity in the plastics industry. One is certainly the fact that many plastics and moldmaking companies are into the third and fourth generations of the family business. For those whose founder is still running the business, many of those who are in their 60s and 70s are trying to retire, primarily by selling the company to another entity who will keep it running.
The recession of the early 2000s, as well as the great recession of 2008-2009, resulted in the failure of the weakest molders and moldmakers. Those left standing tend to be the larger, stronger companies that have weathered the storm and gotten more financially stable due to an expanding customer base now that the smaller competitors have fallen by the wayside.
But there’s a limit to just how much growth and expansion even a large mold manufacturer or molder can finance on its own. In this industry, a "large" mold manufacturing company might generate somewhere between $50 million and $75 million in annual sales. Custom injection molding companies can grow to a size upwards of $200 million, but those are few and far between. And as we’ve seen over the past few years, those are the ones that have been acquired and merged into larger, OEM businesses.
There are a few things that matter when companies begin shopping for a molding or mold manufacturing company to buy:
Size matters : Yes, size matters because size tends to equate to the strength of a company. Not always, but a company that has grown to a considerable size in this industry—say $200 million in sales for a molder and $75 million in sales for a moldmaker—has done so because of good management, a good reputation in the markets it serves and among its customers, and optimum utilization of technology. It wasn’t by accident.
Technology matters : It’s important for a company to have invested in and maintained cutting edge utilization of technology as a competitive advantage. Any company can buy technology. But it takes good management, skills training of employees, and a dedication to optimizing technology (machinery, automation, software, etc.) to turn an investment in hard assets into real value for the company. Technology also provides a way for companies to vertically integrate into complementary capabilities and extend their reach to new customers.
Customers matter : A good customer base is also a critical factor that buyers look for when shopping for a processing or moldmaking company. A strong customer base has intrinsic value, and while there’s no guarantee that customers will stay with a supplier forever, it provides a solid foundation upon which