Sponsored By

The plastics industry is showing resilience navigating pockets of opportunity in a challenging global economic landscape.

September 25, 2023

4 Min Read
magnifying glass sitting on charts and graphs
Apiruk/iStock via Getty Images

Michael Benson and David Evatz

The plastics industry has experienced its share of challenges and opportunities in the ever-changing economic landscape. In this article, we delve into the prominent trends shaping the plastics industry in 2023.

M&A activity on the rebound

The first half of 2023 witnessed a notable 20% decrease in plastics industry M&A transactions compared with the same period in 2022. This slowdown was primarily attributed to a confluence of inflation, rising interest rates, geopolitical tensions, and the financial performance of plastics companies over the preceding months. The weaker financial performance was, in many instances, influenced by the "destocking" of inventory and sluggish demand in specific end market segments.

Despite this initial decline, the M&A landscape rebounded in Q2 2023, hinting at a challenging yet active market for the remainder of the year. Not all companies are equally affected by these challenges, emphasizing the significance of a company's performance and its market outlook in influencing exit decisions for business owners.

Financing challenges and buyer strategies

Securing capital for acquisitions has become increasingly difficult and costly in the current economic environment. The cost of capital for acquisition financing has risen notably compared to a year ago, impacting buyers' ability to meet sellers' value expectations. Financial buyers, however, remain active in M&A, armed with significant dry powder. Their pursuit of new and add-on investment opportunities underscores the ongoing attractiveness of the plastics industry.

The first half of 2023 saw a modest softening in natural gas and crude oil prices, with natural gas dropping around 29.6% and crude oil decreasing by 11.9%. Global economic growth concerns and the possibility of a US recession have influenced demand, while higher-than-anticipated oil flows from Russia have put downward pressure on crude oil prices.

Resin prices have generally experienced a decrease in 2023, albeit with certain commodities showing modest fluctuations. The interplay of inflationary pressures, global growth dynamics, and recession fears have contributed to these changes. OPEC's decision in April 2023 to cut oil production through the year indicates a potential increase in oil prices for the latter half of the year.

Market resilience

Amid the uncertainties, the global economy has displayed resilience, with macroeconomic indicators stabilizing. A low unemployment rate of 3.6% and above-average consumer confidence attest to this resilience. Real US GDP grew by 2%, marking a substantial recovery from previous downturns. Inflation has shown signs of cooling, primarily due to the Federal Reserve's consistent interest rate hikes throughout the first half of the year, which saw the federal funds rate reaching 5.3%. This strategy, aimed at economic stabilization, has contributed to a rebound in equity markets.

Tight labor market, demand dynamics, and reshoring

The plastics industry has been grappling with the challenges posed by a tight labor market, leading to slowed wage growth. However, a silver lining has emerged as material and input costs have moderated, providing some relief to US manufacturers. On the demand side, the industry experienced slower-than-expected demand in the first half of the year, though optimism remains for a more robust second half.

In the broader context, reshoring has taken center stage due to ongoing geopolitical concerns. The desire to mitigate supply chain risks and enhance domestic manufacturing capabilities continues to influence industry dynamics.

The plastics industry is navigating a complex landscape, but the resilience exhibited thus far underscores its ability to weather challenges while capitalizing on emerging opportunities.

 

About the authors

Benson-Stout.png

Michael D. Benson

Michael D. Benson is a managing director in Stout’s Investment Banking Group. He is responsible for the execution of investment banking transactions, which include mergers, acquisitions, divestitures, and the private placement of senior debt, subordinated debt, and equity securities.

Stout-Evatz-123.jpg

David M. Evatz

David M. Evatz leads the Plastics & Packaging Industry Practice within Stout’s Investment Banking Group. He has extensive mergers and acquisitions experience, having executed numerous M&A and corporate finance transactions, including buy and sell side assignments, leveraged buyouts, joint ventures, fairness opinions, and the private placement of senior debt, mezzanine debt, and equity securities.

Stout provides a full range of strategic alternatives including merger and acquisition (M&A) advice, private capital raising, financial sponsor coverage, and other financial advisory services to family-owned businesses, portfolio companies of private equity firms, and divisions of large corporations.

Sign up for the PlasticsToday NewsFeed newsletter.

You May Also Like