In its latest “state of the industry” report Blaige & Co. (Chicago, IL), a financial advisory that works only in the plastics, packaging, and chemicals industry, recorded 244 plastics industry mergers and acquisitions (M&A) worldwide in the first six months of 2009, off only 2% from the comparable period in 2008. Not bad, all things considered, though more deals lately are for distressed companies.
Since deal volume in the first half of 2008 was 20% higher than the second half of the year, Blaige & Co. predicts that the full year 2009 results may surpass the 447 transactions completed in 2008. During the economic downturn in 2001/2002, plastics M&A activity dropped from 213 deals completed in 2000 to 198 in 2002. The current activity levels continue to represent historically strong results with expected 2009 volume remaining 43% over the average of 341 deals closed on average for the years 2000-2008.
However, the average deal size has decreased given that fewer mega deals are occurring and that distressed deals are a larger proportion of the total. The vast majority of M&A activity in the plastics industry continues to be in the middle market range of $10 million-$100 million in enterprise value. Accordingly, valuations on average have decreased in weaker sectors, although profitable companies are fetching attractive prices from strategic buyers.
Thomas Blaige, who founded the company in 2003 but who had been involved in plastics industry M&A before striking out on his own, met with MPW at last month’s NPE tradeshow. He said that in 2002, M&A in the U.S. were at least 50% of the time concluded by two U.S.-owned companies. That figure had dropped to 30% in 2008, he said, a reflection both of currency exchange effects as well as the continuing attractiveness globally of the U.S. market.
Blaige & Co.'s data is surprising given that industrial (not plastics specific) M&A is off 15-20% so far in 2009. However, the plastics industry is unique in several respects, said the report. It is much more fragmented than other industrial sectors, having been born largely in the post-WWII era. There is also large-scale vertical integration in the plastics industry, which results in divestitures of non-core business units during economic downturns. Plastics serve diverse end markets, including markets that are stable or growth-oriented despite downturns, such as packaging and medical. Additionally, said Blaige & Co., there continues to be an underlying migration to plastics from other materials, such as fiber, metal, wood and glass.
Some highlights from the Blaige & Co. report include:
• Deals involving U.S.-only parties or at lease one U.S. party increased 8-10%.
• Deals with no U.S. involvement dropped 11%.
• Financial deals increased by 5% (most represented either distressed platform acquisitions or strategic add-on acquisitions)
• Corporate divestitures increased 18% (included many deals from the raw materials, automotive molding and automotive foam sectors).
• Financial divestitures of entire portfolio companies dropped by 42%, reflecting a reduction in return-driven sales by owners, who favored divesting weaker components of portfolio companies in an effort to preserve value.
• Plastic packaging deal volume increased 25% (represented broadly across all packaging sectors and driven by U.S. strategic deals).
• Packaging activity outside of the U.S. decreased.
• Non-packaging deal activity decreased 10% on the whole, and decreased 22% if raw materials deals were excluded. This trend is exacerbated when considering non-U.S. industrial plastics markets, which were down 31% in large part due to a weak industrial plastics market in Europe. —[email protected]