In 2016 the plastics and packaging M&A market experienced several notable trends including strong second half of the year performance, the second consecutive year of growth in private equity activity, increased public valuation multiples, and higher outbound M&A activity from US buyers. Plastics and packaging transaction volume consisted of 337 transactions in 2016, up from 328 in 2015.
Deal activity has been supported in part by increased industry consolidation from private equity buyers, low-cost financing, and continued strategic buyer interest in M&A as a growth vehicle. In reviewing private equity trends specifically, add-on acquisitions increased from 49 deals in 2015 to 67 deals in 2016 as these investors sought to invest in “buy and build” platforms at an increased level, creating even higher competition for quality acquisition opportunities.
From a cross-border viewpoint, U.S.-based buyers had an increasing role in global plastics M&A in 2016, due in part to a favorable economic environment and strong U.S. dollar. Foreign buyers experienced a slower year for plastics M&A as uncertainty in Asian and European markets contributed to less conducive M&A conditions for foreign buyers. Accordingly, the number of transactions involving foreign buyers fell to 198 deals, or 25 fewer deals than the 5 year average from 2010 to 2015 of 223 deals.
Key 2016 plastics M&A trends included the following:
• Year over year increase of 22 deals in H2 2016, which offset a decline of 13 deals in H1 2016, as buyers overcame some of H1’s economic uncertainty.
• On a sector basis, volume growth was driven by film and blow molding, which grew by a combined 21 transactions. This growth was partially offset by declines in injection molding and resin / color & compounding activity.
• Transaction mix shift in plastic packaging as flexible packaging transactions increased by 8 deals in 2016 and rigid packaging activity declined by 9 deals year over year.
• Average stock market valuations for publicly traded plastics and packaging companies increased by 0.2x, from 9.8x EV/EBITDA in Q4 2015 to 10.0x in Q4 2016.
Key transactions for second half 2016 included the following:
• Pritzker Group Private Capital’s acquisition of ProAmpac (sales of nearly $1 billion)
• Newell Brands’ (NYSE:NWL) acquisition of Sistema Plastics for $470 million
• Water Street Healthcare Partners and JLL Partners’ acquisition of MedPlast
• American Securities’ acquisition of Chromaflo from Arsenal Capital
• Teijin Limited’s (TSE:3401) acquisition of Continental Structural Plastics for $825 million from an investment group led by Scott Capital
• CCL Industries’ (TSX:CCL.B) acquisition of Innovia Group for $844 million
Plastics M&A activity in 2016 extends a prolonged cycle of robust deal making and strong valuations. The environment continues to be a “seller’s market” driven mainly by the high level of competition from both financial and strategic buyers and the low cost of capital. Our current view is that the strong M&A market will continue for 2017, but we remain somewhat cautious due to the extended length of the current, robust cycle. With the election completed and the renewed optimism for the economy, factors are in place to help extend the cycle.