PMCF's John Hart contributes to Plastics News M&A Article
Feb 13, 2014
Overall M&A activity down in 2013
Click here to access PMCF's 2013 Plastics and Packaging M&A Year in Review
Link to Plastics News and excerpts from the article:
Plastics companies changed hands at a decelerated rate in early 2013, but mergers and acquisitions activity picked up pace in each subsequent quarter to 96 transactions in the last three months of the year.
The fourth quarter was only off slightly from the robust deal volume seen at the end of 2012, when there was a race to seal some 101 deals before a change in the capital gains tax rate helped ring in the New Year.
However, overall, the 332 M&A transactions completed in 2013 lagged 13 percent behind the 381 deals inked in 2012, all this according to global activity tracked by P&M Corporate Finance of Southfield, Mich.
Several M&A advisory firms monitor records of all publicly disclosed transactions, culling data from various sources, which leads to various volume counts. But professionals contacted for this story agree world-wide activity was down 5-13 percent.
The year-over-year decrease can mainly be attributed to the completion of just 67 deals in the first quarter, according to P&M investment banker John Hart, who said 2013 was slow for a couple reasons other than the tax implications that pulled some transactions forward into late 2012.
"The year reflected a hangover from the economic and political uncertainty caused by the U.S. presidential election and government fiscal cliff in 2012," Hart said in a telephone interview.
However, buyers shook off any lingering reluctance. Hart said they finished 83 M&A transactions in the second quarter of 2013 followed by 86 in the third quarter. Deal volume increased from 150 transactions in the first half of 2013 to 182 in the second half with strategic buyers continuing to lead the charge, he added.
Overall, 2013 was a "healthy year" for M&A activity in the industry, said Hart, who is P&M's plastics and packaging group director. The firm's database shows the second half of 2013 down by nine deals from the 191 transactions logged in the second half of 2012.
"The beginning of 2013 was slower than everyone thought given how favorable conditions are but as the year progressed it started to pick back up to more historical levels," Hart said.
The number of deals in the 2014 pipeline has investment bankers feeling optimistic about the first half of the year.
From a deal-size perspective, Hart said the smaller to mid-size companies make up a larger portion of the statistics simply because there is more of them.
"The plastics industry remains fragmented," Hart said. "It has been consolidating over a number of years and you're starting to see different industry segments go from having a large number of participants to a smaller number."
Interest by sector
Injection molding transactions again led the plastics and packaging deals, representing 26 percent of M&A activity — 86 deals total — in 2013, according to P&M. Another 21 percent of deals (69 total) were struck in the resin/color and compounding sector followed by 19 percent (62) in film, 16 percent (54) in specialty plastics, 12 percent (39) in sheet and thermoforming, and 7 percent (22) in blow molding.
Even though it ranks last by sector, P&M's Hart said blow molding deals were relatively strong. Despite a decline of eight transactions to 22, the sector increased as a percentage of total deal volume, up from 5 percent in 2012.
The distribution of deals by end market brought a notable shift. The largest component of transactions continued to be industrial — constituting 126 of the 332 deals, or 38 percent, in 2013 compared to 173 deals in 2012, P&M says.
However, there is a new runner-up. Acquirers had an increased appetite for food- and beverage-related businesses. They completed nine more deals than 2012 for a total of 58 last year. Food and beverage deals surpassed the 41 consumer transactions in 2013 for 17 percent of the transaction total, according to P&M records.
In one deal last August, Silgan Holdings Inc. entered into an agreement to buy Portola Packaging Inc. from Wayzata Investment Partners LLC for about $266 million. Silgan makes rigid packaging for shelf-stable food and other consumer goods while Portola makes tamper-resistant plastic closures and containers for the dairy, juice and food industries at eight plants in North America and Europe.
"Silgan views the acquisition as an opportunity to bolster the company's relatively small European plastic closure presence via Portola's manufacturing facilities in the United Kingdom and Czech Republic," Hart said.
Consumer-related deals, which cover a wide gamut of products from galoshes to toys, dropped to third behind food and beverage in terms of percentage of deal volume. P&M's tracking shows 41 deals in 2013, which represents 12 percent of the total and a decline from 63 deals of 2012.
The same database indicates medical held the fourth spot with 35 M&A deals making up 11 percent of all transactions. The end market continues to be popular, increasing from 20 deals in 2011 to 31 in 2012. Another major acquisition was announced recently but hasn't closed: Medical device maker Coviden is buying Given Imaging for $860 million.
The areas of construction, electronics and transportation all showed minor gains while remaining in the same position in terms of overall end market share, according to P&M.
The same database indicates automotive deals fell again from 35 in 2011 to 27 in 2012 to 19 last year.
Hart said one of the largest auto-related deals came in November when Kuaray Co. Ltd. agreed to buy glass laminating solutions/vinyls from DuPont Co. for $450 million. The acquired business makes polyvinyl butyral and ionomer sheets for safety glass as well as vinyl acetate monomer and polyvinyl alcohol products for automotive applications.
Packing it in
By product segment, packaging transactions accounted for 37 percent, or 122 deals, of plastic M&A activity in 2013, which was up from the 118 deals that accounted for 31 percent of volume in 2012 based on P&M data. Rigid packaging deals increased by one to 59. Flexible packaging deals were up by five to 51, and bottles experienced a two-deal drop to 12.
In one of the big transactions of late 2013, the New York-based private equity firm American Securities LLC acquired a stake in Tekni-Plex Inc. in a deal an insider told Bloomberg News was valued at more than $700 million.
Tekni-Plex consists of eight companies with 24 manufacturing facilities in North America, Europe and Asia that make thermoformed plastic packaging and tubing products for the healthcare, food and beverage, and specialty end markets.
"The investment in Tekni-Plex aligns with the private equity group's strategy to invest in market-leading companies," Hart said, adding Tekni-Plex had estimated sales of $655 million in 2012.
Other major transactions included CCL industries acquiring the pressure-sensitive label business from Avery Dennison for $500 million and WNA buying Par-Pak Ltd. for more than $300 million.
Also, Sun Capital Partners merged its five packaging holdings of Exopack Holding, Britton Group Ltd., Paccor International, Kobusch UK Ltd. and Paragon Print and Packaging Ltd.
Resin also continues to resonate. P&M says last year's 70 deals matched the number in 2010 — a recent peak year with 393 transaction in total driven by pent-up demand from The Great Recession. Resin transactions then dropped to 49 in 2011 before edging back up to 56 in 2012 and continuing its climb last year.
In 2013, there were seven more deals in the area of resin, color and compounding, Hart said.
In one major transaction, Mexichem SAB de CV acquired PolyOne Corp.'s PVC resin business for $250 million. PolyOne parted with its last remaining resin production assets, including manufacturing plants and a research operations, to focus on performance materials and specialty coatings.
P&M says foreign-to-foreign deals were up from 50 percent of cross-border activity to 56 percent while foreign investment in U.S. companies was down significantly — from 29 deals in 2012 to 11 in 2013.
The 215 strategic buyers outnumbered 117 financial buyers in 2013 based on P&M's database.
"Within strategics, there are a number of consolidators using acquisitions to fuel their growth or compliment their existing business and create bigger, more valuable companies," Hart said. "Going back to 2007, there have been 200-plus deals by strategics each and every year."
The biggest deal of 2013 was announced in September when officials of Molex Inc. announced they sold the 75-year-old business that makes plastic components for the electronics market to Koch Industries Inc., for about $7.2 billion.
In another 10-figure transaction, AEA Investors LP sold CPG International Inc., the parent company of Azek and Timbertech, to a pension fund in an undisclosed deal. News agency Reuters estimated the value of CPG at $1.5 billion.
However, there weren't as many mega deals in 2013 as past years, financial pros agreed.
In the first half of 2013, the marquee deal was Milacron LLC's purchase of Mold-Masters Ltd. for $970 million. The $655 million Jabil deal followed.
Later in 2013, Tokyo-based Toray Industries Inc., the maker of carbon fiber used in Boeing Co.'s 787 Dreamliner, announced it was buying Zoltek Cos. Inc., based in St. Louis, for $584 million to expand into the windmill blades and auto parts market.
On the materials side, WR Grace & Co., which makes specialty chemicals and materials worldwide, agreed to be acquire the Unipol polypropylene licensing and catalysts business of Dow Chemical Co. for $500 million.
Multiples remain high
Valuation multiples within the M&A activity in the plastics industry were steady for 2013 after reaching higher levels at the end of 2012, Hart said, looking at the most common metric — earnings before interest, taxes, depreciation and amortization (EBITDA).
"They stayed at the higher levels through 2013 based on our experience," Hart added. "They are, unfortunately, rarely disclosed. It's hard enough to get the size of the deal much less the earnings."
Regulated markets, such as medical, food and pharmaceutical, push multiples to the high end of the range.
Investment bankers expect the marketplace environment of 2014 to be similar to 2013, at least for the first half of the year.
"As long as the economy continues to show recovery and credit remains strong, I think M&A activity will show a healthy amount of volume," Hart said. "That could change if the economy starts going in the wrong direction or banks stop lending for M&A or something happens in Europe, but sitting here today we don't have any major concerns on the horizon."b