Over the past 50-plus years, merger and acquisition (M&A) activity in the plastics space has followed a remarkably consistent eight- to 10-year cycle. The last major downturn in plastics M&A was during the Great Recession of 2008, which puts us at a 10-year plateau of continued, sustained growth. Thus, buyers’ appetites should be sated and, if the past is any indication, M&A in the plastics industry should be headed for a period of calm. Instead, M&A activity remains robust and shows no sign of declining. There are several somewhat unusual factors in 2018 that are sustaining growth and bucking the normal cyclical trends, according to Deborah Douglas, Managing Director of the Douglas Group (St. Louis, MO), an investment bank that specializes in middle market M&As with a focus on plastic and metal manufacturers. She cites four primary reasons.
1. Baby boomer retirement money seeking business investments
“The demographics of an aging America, expanding life expectancies and the related boom in growth of active and willing investment capital nourishes the appetite for continuing growth through acquisitions,” said Douglas. In 2000, the U.S. population over the age of 65 totaled approximately 35 million, she noted. “In 2016, that count had swelled to more than 50 million. The number of millionaires-plus in that population likewise continues to swell, making more money available for gainful investment in the marketplace,” said Douglas. As a result of this demographic shift, private equity funds seeking to support such investments have more than doubled in the past decade, according to Douglas. “Our firm sold approximately one deal in 10 to equity funds 25 years ago. Today that total is around 50%.” An abundance of investment capital means healthy competition for acquisitions, and that is likely to hold true for some time to come, predicts Douglas.
2. Evolution of uses for plastic products continues to grow
Plastics are the building blocks of an ever-wider range of products. “The fact is, plastic-based products in many cases are cheaper, lighter, safer and stronger than products made from other materials. Just think of major common categories—packaging, container products, building and construction and appliances—where the use of plastics has quintupled in the past 50 years. In the building sector, plastics are routinely used to make window frames, pipes, flooring, roofing, and insulation. In healthcare, plastics have revolutionized everything from artificial limbs to silicone tissue expansion, often extending the lifetime of devices by decades compared with other materials,” said Douglas. As plastics recycling technologies continue to innovate and expand, the fear of materials that don’t easily self-destruct and remain unaltered for hundreds of years in our environment will abate, she added. “The natural evolution of long-lasting and durable goods will continue to grow plastics for the