Plastics M&A Pulse – H1 2017

H1 2017 plastics and packaging M&A volume surged above H1 2016, by 19 deals or 12%, reflecting a strong start to the year for buyers and sellers focused on the industry. The first six months of the year recorded 180 deals vs. 161 in the same period for 2016. Keeping in mind 2016’s very healthy level of M&A activity, which was slightly above the average deal count for the last four years, 2017 is pacing to potentially be the highest year for dealmaking since 2012.

Key trends supporting this higher volume include the sustained and aggressive presence of private equity, up slightly overall, but the story in 2017 has been more centered on strategic buyers. For the last two years growth in M&A deal count has been driven by private equity; however, in H1 2017 strategic buyers came off the sidelines increasing their activity by 20%. These strategic buyers were most active in more fragmented sectors including profile and tube extrusion and composites.

From a global viewpoint, North America recorded higher activity levels than Europe which may have reflected some concerns regarding the still unknown long term impacts of Brexit on the EU and its key members’ economies. Domestic activity, including foreign acquirers, totaled 37% of activity in H1 2017 vs 31% in H1 2016. US buyers were also active in reaching out overseas, recording a significant 77% increase in cross-border acquisitions and potentially reflecting leverage of strong balance sheets created over the last several years of US economic growth.

Key H1 2017 M&A trends included the following:

• Overall growth in deal volume led by the specialty sector (variety of processing types), film, and blow molding
• Robust buyer focus on plastic packaging with deal volume increasing 23%. Of note flexible packaging volume was sustained at an elevated level, but aggressive financial and strategic buyers substantially increased rigid packaging M&A
• The average EV/EBITDA multiple for publicly traded plastics & packaging companies increased from 10.1x at the end of Q4 2016 to 10.8x in Q2 2017

Key H1 2017 transactions included the following:
• BWAY’s (Stone Canyon) purchase of Mauser for 10.5x EBITDA ($2.3 billion)
• RPC’s (LSE: RPC) acquisition of Letica for 11.2x EBITDA ($490 million)
• Strategic Value Partners combining their Klockner Pentaplast and Linpac platform businesses
• Nordson’s (NASDAQ: NDSN) acquisition of Vention’s Advanced Technologies medical device business for 14.6x EBITDA ($705 million)
• Silgan’s (NASDAQ: SLGN) purchase of Westrock’s closure business for 9.6x EBITDA ($1 billion)
• Specialty custom injection molder Precision Components, Inc.’s (PCI) sale to private equity group MPE Partners
• Leonard Green Partners’ purchase of Charter NEX for $1.5 billion
• PPC Industries’ (Kohlberg & Co.) purchase of Pexco

The outlook for plastics and packaging M&A remains positive for 2017 from our viewpoint. Supporting factors include the segment’s long term stability through economic cycles (particularly packaging and medical), large platforms in buy and build mode, aggressive strategic buyers, sustained private equity interest, and very seller friendly pricing levels encouraging additional targets to come to market. However, while still robust today, buyers and sellers need to consider the length of the current economic and M&A cycle in their strategy and planning as it will eventually revert.