While geopolitical events and the potential slowing of the economy have softened multiples in certain end markets within the plastics industry, overall, the M&A market remains active with an abundance of both buyers and sellers.
Through our team’s active conversations with top industry participants and analysis of subsector performance, we have seen a variety of key trends emerge in the plastics market:
- The M&A market remains active. Strategic, hybrid, and financial buyers remain active in M&A. Financial buyers continue to pursue new and add-on investment opportunities. In addition to this, sellers are entering the market, often due to some concern over the long-term health of the economy.
- Still, multiples have begun to soften from all-time highs in 2021 within end markets demonstrating uncertainty. The housing/construction and consumer durable markets are seeing this the most, and markets that are seeing a slowdown understandably see lower sale multiples. All in all, valuation differences continue to exist across key end markets served.
- Inflation persists. Despite recent interest rate increases to tame the rising level of inflation, the overall cost of capital remains relatively low by historical standards. The global economy has begun to slow as geopolitical and macroeconomic headwinds persist.
- Uncertainty remains across the plastics industry. The plastics industry is faced with some level of uncertainty as inflation, interest rate increases, the continuation of the COVID-19 pandemic, labor and supply chain constraints, and geopolitical issues continue to be a concern for businesses and investors alike.
- Pricing issues challenge the market. Labor costs and availability, along with material price volatility, will continue to impact businesses across the supply chain. Sustained cost increases in raw materials and labor costs are driving companies to raise prices, but market participants continue to see strong demand even while employing more aggressive pricing strategies. Many manufacturers are benefiting from reshoring efforts that started before the pandemic and have since accelerated in some segments.
- Geopolitical obstacles weigh on market. Sanctions on Russian exports have intensified the upward pressure on commodity prices. Factors from the COVID-19 pandemic, inflationary pressures, and global supply chain constraints have led to an increase in prices across the board. In addition, the relative uncertainty surrounding Europe’s energy and overall economy (largely but not exclusively caused by the war in Ukraine) may lead to offshoring from Europe either to North America or Southeast Asia. This may also drive interest from European companies in M&A activity within the United States.
As we move into 2023, the above trends highlight that the importance of having a competitive process and a successful sale to maximize value is achieving or exceeding expected profitability in your given end market.
About the authors
|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.
|David M. Evatz|
David M. Evatz is Head of 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.