Sponsored By

Ask just about any investment bank or financial firm about the plastics industry with respect to M&A and they paint similar pictures: it's hot! While some reports show that transaction volume was down in 2013 from 2012, overall plastics industry players remain attractive to those looking to get into the plastics market.

Clare Goldsberry

April 8, 2014

4 Min Read
Plastics industry M&A proves to be hot market

Ask just about any investment bank or financial firm about the plastics industry with respect to M&A and they paint similar pictures: it's hot! While some reports show that transaction volume was down in 2013 from 2012, overall plastics industry players remain attractive to those looking to get into the plastics market.

images-2_0.jpegAccording to Stout Risius Ross Inc. (SRR), a middle market investment banking company, plastics M&A volume increased approximately 26% in 2012, but decreased approximately 9% in 2013. Despite that SRR noted in its report that there "continues to be strong demand for plastics companies across all end markets and processes." Industrial plastics continues to represent the largest number of transactions with 64% of the volume followed by plastic packaging at 22% and medical plastics and automotive plastics at 10% and 5% respectively.

However, both medical plastics and industrial plastics deal activity grew in 2013, particularly medical, which increased 31%, the SRR report noted. While there are a number of factors and industry dynamics driving this growth, a few that SRR pointed out include "continued high demand for quality acquisition targets from both strategic and financial buyers, good availability of financing for both small and large transactions and positive macro economic trends and outlook for many plastics end markets."

Rick Weil, managing director at Mesirow Financial, told PlasticsToday that in addition to being a very stable industry, the diversity that players in the plastics industry offer makes it very attractive to both financial and strategic buyers looking to diversify their own portfolios. "Plastics is an industry that touches many end markets and for that reason it attracts investments and strategic buyers continue to build in that area," Weil commented. "People outside the industry are trying to get into it. The plastics industry is a magnet for a lot of private equity transactions."

RSS reports that plastic packaging transaction volume decreased 27% in 2013, the sector saw fewer mega deals relative to the past several years. The sector also saw a decline in private equity-backed acquisitions. There was improvement in plastic packaging M&A volume during Q4 of 2013, which could be a sign of more activity in 2014.

Mesirow Financial's Weil holds up Berry Plastics as a company that, from his observation, is the "poster child for their strength, willingness and vigor with which they go after deals" in the plastics packaging sector. Weil is impressed with the way Berry grew its business over the past 14 years, "expanding into new end markets, new products and new geography and since 2003 has been on acquisition tear," taking Berry to a $4.7 billion company.

Berry2_web_0.jpg

Another thing that Weil admires about Berry is the strategic way the company goes about making its acquisitions. "Berry has an absolute playbook for getting acquisitions done, and they've built a great business," Weil said. "They also have a playbook on how to optimize an acquisition as well. They know what to do once they own a company."  

One interesting note in my conversation with Weil is his insistence that there are opportunities for smaller, privately-held companies in the plastics industry to be acquired by the larger firms like Berry. Weil believes there are a number of good plastics processors out there that present an opportunity for larger companies looking to add to their portfolios. 

"With that in mind, however, selling a business is incredibly emotional for the owner," Weil said. "When they go into a sale process there's a ton of trepidation. They have to be prepared for rumors. They want a quick and quiet process, and to be assured that the counter-party will do what they say they will do with no foot-dragging. They want to be sure there are no financing issues - no available capital issues. They're looking for continuity for their business. Those things are incredibly appealing to someone looking to sell their business."

What are the bigger companies looking for in an acquisition? The private equity community is looking for stability in revenues, but fragmentation also. They're looking for big national accounts that are successful in specific regions of the country that they can put together as national player, and extended their capabilities, technologies and geographic reach. They fancy themselves as entrepreneurs looking to build holistically and organically by doing add-on acquisitions. "A lot of these larger companies are taking a good business and making it great and more diverse," stated Weil. "They can consolidate these various acquisitions to achieve synergies."

Others will take on troubled companies; companies that lack the capital to get new technology, or take an underperforming company and fix it. "The landscape is littered with these companies," Weil commented. "There's no shortage of bad management out there. If the seller has a good market and good geography, the buyer can put the right person in place these things can be fixed."

About the Author(s)

Clare Goldsberry

Until she retired in September 2021, Clare Goldsberry reported on the plastics industry for more than 30 years. In addition to the 10,000+ articles she has written, by her own estimation, she is the author of several books, including The Business of Injection Molding: How to succeed as a custom molder and Purchasing Injection Molds: A buyers guide. Goldsberry is a member of the Plastics Pioneers Association. She reflected on her long career in "Time to Say Good-Bye."

Sign up for the PlasticsToday NewsFeed newsletter.

You May Also Like