Merger and acquisition (M&A) activity in the plastics industry dipped slightly in 2022 as the economy struggled to emerge from post-COVID effects only to enter a period of rising interest rates and inflation.
That said, the M&A picture remained in line with historical averages, according to the new “2022 Plastics Industry Update” by the Stout Plastics group.
The 417 plastics industry M&A transactions of 2022 reflected a 20% decline over the previous year, the report noted, and this year the industry is facing uncertainty thanks to emerging geopolitical issues accompanying continued inflation and interest-rate increases.
Who might be the big winners and losers in 2023?
“Given the somewhat unevenness of the current economic environment, one of the most important factors is the end markets that they serve and how that end market is performing and expected to perform in the future,” said Michael Benson, Stout’s managing director for plastics and industrials. “Healthcare end markets are generally considered to be fairly immune to short-term setbacks in the economy as opposed to more cyclical end markets like automotive, consumer discretionary, and housing. Other companies that will weather setbacks well include those businesses that are not subject to constraints in a supply chain as well as a tightness in their regional labor markets.”
Buyers will be looking for companies that serve "attractive end markets” and exhibit desirable characteristics, including “a highly diversified customer base, best-in-class EBITDA margins, and growth profiles. Those companies holding a niche with a process and/or process technology and a history of investing and upgrading in new equipment, facilities, and infrastructure and systems will also be attractive.”
In terms of the deals that fueled 2022, international and cross-border activity “held up better than domestic,” the report noted. The latter decreased 36%.
By market segment, M&A activity decreased by the following percentages.
- Medical: 48%
- Plastic packaging: 36%
- Automotive: 20%
- Industrial end markets: 5%
Blow molding, rotational molding, thermoforming, and plastics distribution were bright spots in the end-market segment, the report noted.
In terms of processing, six of the 10 plastics processes Stout tracks were flat or down in 2022. Plastics machinery dropped the most at 46%, while injection molding transactions fell 36% and resin/compounding was down by 30%. Blow molding, rotational molding, and plastics distribution activity grew.
Resin pricing “generally trended down in 2022 due to an oversupply of certain types of resin,” the report continued.
Examples of transactions and their rationale included:
- Seaway Plastics Engineering, with locations in Port Richey and Brooksville, FL, makes highly engineered plastic components. Seaway was acquired by ICG thanks to Seaway’s commitment to expanding its medical end-market mix.
- Polytech Plastic Molding (Prairie Grove, AZ), a maker of custom injection molded and extruded components, was acquired by a subsidiary of Arcane Capital Partners because Polytech’s deep connections and expertise in the HVAC and water-treatment industries broaden Arcane’s plastics portfolio.