In a year that featured the U.S. presidential election and strong interest in private equity, global plastic packaging M&A registered healthy levels of activity, according to P&M Corporate Finance (PMCF), a middle market investment bank that provides merger and acquisition advisory services.
According to PMCF's Q3 2012 report, plastic packaging actually recorded a small year-over-year increase versus 2011.
John Hart, director of PMCF, co-leads the plastics and packaging group, told PlasticsToday there are a number of factors at play for this increase in activity.
"I think in general the space is viewed as strong and recession resistant; there are strong margins and opportunity to get a return on investment," he said. "There are a number of strategic buyers that are focused on growing though acquisitions."
Plastic packaging M&A totaled 280 deals through the Q3 of 2012, versus 275 in the same period in 2011. Deal flow by quarter in 2012 has been fairly stable, with Q1 at a high of 96 transactions, Q2 at 94 transactions and Q3 at 90 transactions. With Q3 2012 significantly above Q3 2011, 2012's run rate reflects a pickup in activity from the first two quarters of this year, when volume slightly lagged 2011.
M&A activity for custom molding, consumer products and building products all experienced year-over-year increases with custom molding increasing by 9% and building products by 4%. Plastic packaging segments, including rigid, flexible and bottling converters, accounted for one-third of all transactions.
Some of the large international transactions in the space included:
- Nordson Corp. acquiring Xaloy Superior Holdings Inc. for $200 million in a move that will expand its offering to global flexible packaging and plastic processing markets in June 2012. That acquisition news followed Nordson announcement it has acquired extrusion-dies producer EDI Holdings Inc. for $200 million.
- Sun Capital Partners' acquisition of Rexam's personal care division for $459 million in July 2012.
- Mondi Group's acquisition of Nordenia International AG for $706 million in July 2012.
- The Carlyle Group's acquisition of DuPont Performance Coatings, Inc. from E.I. du Pont de Nemours Co. for $5.2 billion in August 2012.
- Australia-based Pact Group Pty acquired Viscount Plastics Pty Ltd. from the Linpac Group for $145 million in August 2012.
- Another Linpac deal: The company entered a definite agreement to sell its subsidiary Ropak Packaging, a rigid plastic shipping container producer, to rigid container manufacturer Bway Corp. for $265 million in December 2012.
PMCF said deals involving injection molders declined by seven deals through Q3 2012 compared with the same period a year earlier, despite significant increases in activity within industrial, medical, and food and beverage end markets.
Transaction mix among financial and strategic buyers shifted slightly as acquisitions by private equity groups declined by only a single deal to account for nearly 41% of injection molding deals versus approximately 39% through Q3 2011, PMCF stated.
Still, cross-border M&A declined by just one deal compared with 2011 while acquisitions shifted to an even split between U.S. and foreign investors. Distressed deal volume among injection molders was also down two deals versus the comparison period.
Deal volume among film extruders and converters declined more than all other plastics segments, falling nine deals through Q3 2012 compared to the same period in 2011, according to PMCF. While year-to-date activity shows a decline, 2012's 3Q deals increased year over year.
Transaction activity among film manufacturers serving industrial and medical end markets experienced a slight increase during the first three quarters of 2012.
"Food and beverage was pretty flat," Hart said. "Consumer is down, not sure what is driving that, we'll have to do more research in that sector; it could be an anomaly, or it could be something that is continuing."
Foreign transactions remained strong through three quarters of 2012, matching volume from 2011 at 39 deals while cross-border M&A and U.S.-based activity were both down from the comparison period.
Sheet and thermoforming activity
M&A activity involving sheet extrusion and thermoforming companies increased by four deals through the 3Q of 2012, versus the same period a year earlier, as deal volume increased across multiple sectors, PMCF stated. Deal volume mix between strategic and financial buyers during the first three quarters of 2012 remained consistent compared with Q3 YTD 2011, as activity involving financial buyers grew to account for 32% of total volume.
Deal volume among blowmolders through the first three quarters of 2012 continued to outperform levels experienced in 2011, including most recently in Q3 2012, which experienced five blowmolding deals versus only two deals in Q3 2011.
M&A activity remained flat or increased across most blowmolding end markets with industrial and consumer deals experiencing the largest increases through Q3 2012 compared to the same period a year earlier
Private equity interest
One trend that was consistent throughout 2012 was the amount of private equity firms that continued to pursue opportunities in the industry.
Hart said, in general, there's a high level of money committed to private equity that needs to be invested, with plenty of supply and demand.
"Plastic packaging has strong fundamentals, a lot of companies have strong management teams and good strong margins and there's also good growth opportunities," he said. "I think all these factors make the sector of interest to private equity groups."
He cited the example of Mold-Rite Plastics', which is owned by private equity firm Irving Place Capital, recent acquisition of Weatherchem, a privately held business in Twinsburg, OH. PMCF's plastics and packaging group, led by Hart, conducted the sale process for the company.
For Mold-Rite, the acquisition of Weatherchem, combined with its recent acquisition of Stull Technologies, is part of a larger expansion plan that includes both organic growth and acquisitions, and builds upon the company's standards of providing customers with reliability, superior responsiveness, and innovation, according to the company
A peak into 2013 activity
Going forward, PMCF said there are several factors worth monitoring to determine if any changes to the current M&A market will take place. PMCF said debt markets are favorable as lenders have continued to allow both financial and strategic buyers to take advantage of increased leverage multiples, at low interest rates. This has allowed buyers to close any valuation gaps for active sellers while also encouraging some sellers on the fence to consider a sale.
A second factor to consider is strategic parties within each segment of the industry. Many of these organizations are in a growth mode and face key decisions to deploy speculative capital to break into new markets versus purchasing a current leader in the space, PMCF stated. This strategy is driven, in part, by most plastics sectors remaining highly fragmented with customers seeking additional mid-size and large suppliers to foster a competitive environment.
After reviewing these and other factors, and based on buyer feedback from active PMCF M&A mandates, PMCF outlook for plastics and packaging M&A remains positive.
"In the near term, including the first several months of 2013, we believe that conditions for a seller's market are likely to be sustained," the report stated. "For buyers, this environment may serve to increase the availability of quality targets and create opportunities for new or existing investments."
Hart said there is some cause for concern such as the political uncertainty with the fiscal cliff and there are still challenges in Europe. However, Hart maintains a positive outlook for M&A activity in 2013.
"I think if the economy continues to move along and we see recovery into the economy, the M&A market will remain strong into 2013," he said. "We are seeing signs that would indicate that."