Last week I attended SPI's annual West Coast event, the Mike Kobel Moldmaker's Trade Fair in Pomona, CA. It was good to see so many people participating in this afternoon and evening event from all across Southern California, and the vendors who came from far-flung places throughout the United States to support this event.
I met a lot of new people, and reconnected with many of the moldmakers I've known for a number of years. The best thing about this event was the opportunity I had to talk to them and get a feel for the industry. The take-away was that things are really busy. The vendors told me that their customers are busy, which means the vendors' business is doing really well.
Many of the moldmaking companies are booked into the first part of 2015, and they are taking on new employees as well as investing in new equipment. I've written about a few of those companies recently, and am always happy to see them growing and busy.
A few of the long-time moldmaking companies have been acquired this past year, which means that they are perceived as a good, strategic value to their buyers. M&A activity is at an all time high generally across the manufacturing industry, so it shouldn't be surprising that there is activity in the plastics industry, as well. Some of these mold manufacturing companies are older, larger businesses that have grown to sizeable facilities over the past few decades.
I asked Jeff Mengel of Plante & Moran what he's seeing out there, since he keeps his finger on the pulse of the plastics industry. He acknowledged that the number of mold shops has "definitely gone down since early 2000," but he isn't certain that any growth in the size of the shops is that significant to the buying interest we've seen lately. "The perceived shortage in the industry is making moldmakers look attractive," said Mengel. "The pressure to invest the huge buildup of private equity money is driving some of the interest for the larger tool shops, but the small tool shops are also of interest to the strategic buyer."
I think, too, that the age of some of the owners of these mold manufacturing companies has something to do with it, as well. Attending various trade shows and talking with company owners about the future has revealed the interest that some have in selling their shops and retiring. It's tough to sell a moldmaking company unless a strategic buyer has a specific plan, such as Flextronics has been doing over the past couple of years in that company's efforts to create a new business entity.
Mengel acknowledged that it's difficult for mold shops to sell at a price at which the owners value them. "The value multiple will not be as high with a tool shop, as they do not have steady customers and/or contracts, which makes buying them affordable for the strategic buyer," he commented.
One recent purchase that I learned of was the acquisition of Rio Grande Tool Co. Inc., located in Brownsville, TX, conveniently across the border from Matamoros, Mexico. According to Andrew Samrick, Managing Director, Advanced Manufacturing Division for Paragon, the acquisition was completed in August. In an interview at the SPI trade fair, Samrick told PlasticsToday that the company had been dealing with Rio Grande Tool for a number of years for mold repairs, ECOs, and maintenance for Paragon's customers in Mexico, so it made sense for Paragon to acquire the facility as a strategic location to continue that service.
The moldmaking business seems to have come back, at least, to prerecession levels as a result of an improving economy, and as more OEMs are less inclined to take their business to China. The advantages of having molds made in the United States, where quality and the security of intellectual property is more assured, seems to be playing out in the mold manufacturer's favor, a trend that appears so far to extend into the next couple of years.