Sponsored By

July 1, 2006

4 Min Read
Sold the shop, remained the boss

Plastics processing is full of Type A personalities, people who have started a business from scratch and labored to make it prosper. Once successful, they often aren''t eager to relinquish control.

Being the ultimate decision-maker in any business can be an addictive treat; maybe that''s why so many businesses run into problems when a sole proprietor, often also a firm''s founder, decides or is forced to leave the scene.

But the challenges of prospering in an industry where competition is local, national and international, and funds for reinvestment in new technology are difficult to find at any level, form a scenario in which many plastics processors are seeking both financial help and a continuing say in their firms'' operation.

Robert Isen, one of the founders of Viapack, a New York City-based holding company formed with Red Diamond Capital, a private equity investment affiliate of Mitsubishi Corp., is on the search for film extrusion operations to buy, with the goal to keep management in place. Red Diamond was formed in mid-2004 and its first acquisition, in August 2004, was Allied Extruders (Long Island City, NY). More recently, Viapack in March acquired its second extrusion business, P&O Packaging Ltd. (Dalton, GA). That purchase brought film extrusion capacity under Viapack control to about 50 million lb/yr.

Management at both processors continues to run their operations. Last year Viapack financed two new three-layer coextrusion lines at Allied Extruders, adding about 10 million lb/yr of capacity for a total annual capacity there of more than 40 million lb from 15 blown-film lines, and Viapack plans to add new coextrusion capacity this year at both P&O and Allied.

P&O''s President, Ben Brashears, declined a telephone interview but, in a statement, said, "Viapack is our ideal equity partner. The Viapack team is committed to building on the business we have created at P&O, keeping our identity, traditions, and key people intact, while providing capital and strategic resources to help us grow."

Isen says his goal is not to become a managing director again. "Our motto is to invest in a business and the people who start and run them. Our preference is to let the owner/principal harvest the fruits of his labor." He says processor interest in such deals is strong.

Bringing together the Type A personalities prevalent in owner/operator processing operations is difficult, he admits, but says his background helps.

"I know about the pressure in terms of succession, the pressure to reinvest [in a company]. We focus on building the value of an entity and try to align everyone''s interests for the company," Isen says. Before helping form Viapack, Isen sold his own film extrusion business, Paramount Packaging Corp., to competitor Bemis.

Isen says his search is focused now on blown-film processors but that he''s open to opportunities to acquire cast-film firms. He maintains the market remains too well served by too many processors. "There is just a lot of overcapacity" in film extrusion, he says, including both cast- and blown-film operations. "We are looking for film companies with defensible market positions in the middle market," he says. Isen defines `middle market'' as operations with throughputs of 10 million-60 million lb/yr.

Standing strong together

Viapack''s premise is that processors will be stronger together rather than in direct competition. Viapack''s goal is to create a 150-million-lb/yr entity, "but not through growth for the sake of growth: rather, strategic growth."

Processors having difficulty obtaining bank financing have other outlets to fund reinvestment while maintaining control. In fact, says Lee Lewis, managing partner at private equity investor Key Principal Partners (KPP; Cleveland, OH), his firm and other mezzanine investors usually agree to take non-controlling interests in a business only when the owner intends to remain with his company. KPP has experience offering manufacturers such as plastics processors mezzanine financing (also called non-control capitalization). Among the half-dozen or so plastics-related investments for KPP was $5.5 million in subordinated debt to support a recapitalization of injection molder Imperial Plastics (Lakeville, MN).

Subordinated debt is secured by capital and equipment-the business equivalent of a second mortgage. Subordinated debt financing typically has six-to-10-year maturity, says Lewis. But subordinated debt''s higher interest rates (relative to what a bank offers) often are an incentive for an owner to pay off a loan early, says Lee.

Matthew Defosse [email protected]

Sign up for the PlasticsToday NewsFeed newsletter.

You May Also Like