Thomas E. Blaige, chairman & CEO of Blaige & Co. , told PlasticsToday that plastic business owners should start exploring options to help grow and become more successful in the competitive marketplace.
"The playing field is changing," he said. "There could be more risks by doing nothing; they need to go beyond their comfort zone."
Despite the global financial crisis, plastics M&A activity in recent years has remained well above the long-term average level, implying that the industry has unique characteristics and thus, does not mirror general industrial M&A activity trends, according to Blaige. This could hold many implications for buyers and sellers of plastic processors, including unique opportunities for those small to mid-sized companies, which make up the majority of the industry.
The plastic processing segments, which include blowmolding, injection molding, and thermoforming, analyzed by Blaige's firm indicate that the U.S. market is comprised of 1450 plastic processors. Made up of primarily small to mid-sized companies, 97% of those have annual sales of less than $500 million, with 78% under $50 million.
In a new plastics packaging M&A consolidation study based on 12 years (2001-2012) of proprietary research, Blaige & Co. identified four consolidation trends associated with the industry.
Globalization driving growth
Plastics M&A deal volume has continued steady growth, increasing from about 200 to 500 deals annually since 2001. This growth has been primarily driven by globalization and strategic motivations, which account for more than 80% of the transactions.
In both 2001 and 2012, 68% of all plastics M&A deals included an international participant. International-only deals have increased from 40% of all M&A deals in 2001 to 45% in 2012, reflecting an ongoing trend toward globalization in the past decade, according to the report. While the proportion of U.S.-only deals has remained constant at 32% since 2001, the number of U.S.-only deals more than doubled over the period.
Big getting bigger, widening "gap"
About 58% of the segment leaders have merged or sold within the past decade, with a focus on critical mass and driving economies of scale, according to Blaige's research. Among remaining leaders, those with greater access to capital are three times larger than their privately funded counterparts. Blaige believes these larger global consolidators and private equity owned companies are in a stronger position to survive the ups and downs of the market and fund projects for growth, giving them the edge in the environment of even greater consolidation that lies ahead.
Sellers' market—quality/size matter
As the plastics industry M&A volume has continued to increase despite the global financial crisis, it appears that global consolidation has a greater influence than economic cycles. The implications of this for buyers and sellers of plastics processors are unique, Blaige said. Potential sellers and managers should be cautious in applying typical industrial buy and sell decisions and thought patterns to plastics M&A.
Data already indicate that the "sophisticated" sellers, corporate and financial/institutional sellers have been on top of the current wave of favorable sell-side market conditions.
However, according to Blaige, private and entrepreneurial owners often wait too long to respond to market