Global Plastics M&A activity was suppressed in 2020 due to COVID-19 with only 285 deals, the lowest level of annual Plastics M&A activity in the last fourteen years and a 15% decline over 2019 levels. Deal activity declined across all end markets except for Consumer and Industrials, which experienced increases of 9% and 13%, respectively. Buyer mix shifted in favor of strategic buyers, increasing by 4% of total transaction activity. While lower than 2019 levels, private equity buyers represented 41% of total Plastics M&A activity in 2020 which remains largely in line with historical averages.
Key trends in Plastics M&A in 2020 include:
- The impact of COVID-19 on Plastics M&A was first felt towards the end of Q1 as several deals were put on hold due to market uncertainty and an initial slowdown in the credit markets. Plastics M&A nearly grinded to a halt during May 2020 as only 6 deals were recorded for the month. On a quarterly basis, Q2 2020 represented the lowest level of Plastics M&A activity recorded in the last fifteen years. This was followed by a surge in deal activity in Q3 and Q4 2020 with 167 reported transactions, a 42% increase over 1H 2020 and a strong indicator that Plastics M&A activity is on track to return to pre-pandemic levels heading into 2021
- PMCF’s Plastics & Packaging public company index reached all-time highs at the end of 2020 after experiencing a steep decline in 1H 2020 due to COVID-19. The stock market is often utilized as a leading indicator for the M&A markets and overall economy
- Deal multiples remained elevated throughout 2020 across most sectors of plastics and packaging despite uncertainty revolving the COVID-19 pandemic. This continues to motivate sellers of high-quality plastics businesses to explore transactions
- Despite being down from a deal volume perspective, domestic transactions accounted for 39% of all Plastics M&A activity in 2020, a 6% increase in mix compared to the last four-year historical average
PMCF remains optimistic heading into 2021 based on strong Q4 2020 activity, current pipeline of deals in the market and feedback we’ve received from many of the top consolidators. Virtual platforms have allowed both parties to meaningfully engage in order to run diligence processes, perform negotiations, conduct integration planning and ultimately close transactions despite COVID-19 restrictions. The resilience of valuation multiples and notable increases in stock market valuations through the end of 2020 should also continue to drive transaction activity. Some factors we are monitoring for potential impact on M&A include negotiations around continued economic relief packages, capital markets and availability of debt packages, and potential impact of future tax legislation introduced by the new Biden-Harris Administration.