Plastics M&A Pulse – H1 2016

Plastics transactions remained healthy through the first half of 2016, despite some declines in deal volume versus H1 2015, as the segment proved more resilient than the broader M&A markets which reflected larger declines. In aggregate, year-to-date plastics transactions declined by approximately 7% compared to the first half of 2015, while the overall M&A market experienced declines of close to 20% in the same period. Further, plastics transaction volumes versus H2 2015 reflected an increase of 7 deals.

The lower levels of deal volume experienced in H1 2016 versus H1 2015 were due in part to lower strategic buying activity which declined 17 transactions, or 10%, versus H1 2015. Conversely, financial (platform and add-on) acquisitions were up by 4 deals in H1 2016 increasing their proportion of total deal volume from 40% of deal volume in H1 2015 to 46% in H1 2016. The increase in volume reflected private equity’s continued focus on consolidation in the plastics industry, most notably in the injection molding segment through H1 2016.

Key H1 2016 plastics M&A trends included the following:

• Financial buyers completed 5 more injection molding deals in H1 2016 – a 25% increase versus H1 2015, while total segment volume was mostly flat
• Declining rigid packaging transactions from 24 in H1 2015 to 15 in H1 2016, a 38% decrease. We believe this is driven by limited supply versus lack of buyer interest
• Sustained interest in sheet and thermoforming deals which increased from 14 deals in H1 2015 to 15 in H1 2016
• The average EBITDA multiple for publicly traded plastics & packaging companies increased from 9.5x at the end of Q1 2016 to 9.7x in H1 2016

Key transactions for the quarter included the following:

• Westlake Chemical Corp.’s (NYSE:WLK) acquisition Axiall Corporation (NYSE:AXLL) for $3.8 billion
• Stone Canyon Industries’ acquisition of BWAY Corp. for $2.4 billion
• RPC Group’s (LSE:RPC) acquisition of British Polythene Industries (LSE:BPI) for approximately $370 million or 7.1x EBITDA
• Amcor Limited’s (ASX:AMC) acquisition of Alusa S.A. for $435 million or 8.5x EBITDA
• Private equity group Mason Wells’ acquisition of MGS Manufacturing Group

Reviewing Q2 2016, the stock market has continued to trend positively and recent economic indicators have been steady. However, the overall M&A market has posted lower levels of activity and we are late in the current M&A cycle. Within this environment we note strong buyer interest in plastics companies driven by a desire to create inorganic growth, capture synergies, and put idle capital to work. Given current market conditions, PMCF expects elevated valuation levels to continue for the remainder of 2016 and early part of 2017 for quality plastics businesses. However, our outlook for the M&A market in the second half of 2017 is less certain at this time.