28 Juin 2004

Mergers market appears to be picking up again – (www.plasticsnews.com)

After a few years in the doldrums, plastics firms are rising in value. Industry watchers speaking at the June 23 Management Day program in Cleveland said valuations in 2004 are approaching the levels they reached in the boom years of 1995-99, after spending the 2000-03 period in hibeation. The program was held as part of Plastics News' Plastics Encounter Midwest trade show.

Jim Hill, managing partner of Cleveland's Benesch, Friedlander, Coplan & Aronoff LLP law firm, said plastics firms with annual sales of more than $100 million now can command selling prices of almost eight times pretax eaings. Firms with sales in the range of $50 million to $100 million can fetch multiples of six to seven times, while firms with sales of $25 million or less can expect multiples of three to six times, according to Bill Ridenour, president of Polymer Transaction Advisors Inc., a consulting firm in Newbury, Ohio.

"We're in the early stages of a [mergers and acquisitions] comeback in plastics," Ridenour said. "We're expecting 160 deals to be completed in the U.S. in 2004 [after seeing fewer than 140 in 2003], but that number could be as high as 180 or 190. "The improving economy has improved buyer confidence. If you're not comfortable about the economy, you're not going to buy a big-ticket item." Hill pointed out that "a lot of private equity money that had been on the sidelines is getting active again." Hill's firm currently is involved in seven pending plastics deals.

Similar multiples are being spotted in Europe. The plastics M&A market in that region is seeing fewer large deals, but activity there is expected to increase because of the strategies of leveraged-buyout firms and the retu of industry buyers, according to Jean-René Hartpence, founder of Canec Inteational Ltd., an M&A consulting firm based in Toronto. In the United States, future M&A action will be focused in the packaging and compounding/concentrates sectors. Ridenour described compounding/concentrates as "especially ripe for consolidation."

Meanwhile, M&A's in the automotive molding sector have been active for what Ridenour called "negative reasons," as risks involved in that market have created lower multiples. On both sides of the Atlantic, a number of deals have resulted from companies selling noncore businesses. The sellers include large chemical and plastics firms like BASF AG and TotalFinaElf SA.

"Trans-Atlantic business has picked up in the last year and a half," Hartpence said. "Large chemical companies are focusing on cost-effective production methods, and we're seeing more European companies looking to acquire in the U.S." However, Ridenour cautioned that the current comeback might be limited to a 12- to 18-month window of opportunity because of the ongoing threats of terrorist attacks in the United States, continued high oil prices and a surge in business lost to China. Any of those factors could derail M&A activity. And a resurgent M&A market carries some of the same risks and rewards that always have been there, according to Keith Harbison, president and chief executive officer of Pretium Packaging LLC, a St.Louis-based custom packaging firm that has made 11 acquisitions since 1992. Pretium operates nine plants in North America and ranked 22nd in a Plastics News survey of North American blow molders, with related sales of $139 million. The firm's total sales were $143 million in 2003.

"The acquisitions that we've made have provided us with rapid growth and new customers, but those same benefits can tu out to be challenges," Harbison said. For example, Harbison said that most buyers believe it's a good thing to retain the existing management of a firm that's being acquired, but that's not always the case. "Sometimes, the old owner's heart isn't in it anymore," he said. "Their level of interest tends to get shifted." He added that making acquisitions "is a process that you have to approach very carefully." "You have to know your competition," he advised. "By knowing who's doing what, you can address strategic needs."

Displayed with permission of Plastics News, Copyright Crane Communications Inc. Originally published in Plastics News.