There were 369 plastics industry M&A transactions in 2020, a 7.5% decrease relative to 2019. Despite the ongoing COVID-19 crisis, plastics industry M&A activity rebounded during the second half of 2020, with the number of transactions increasing 16% relative to the first half of 2020. Positive momentum is expected to continue into 2021 with several factors contributing to potentially strong M&A activity. These factors include improving company performance in many sectors, a generally strong lending environment, overall pent-up demand for quality acquisition opportunities, and possible increased supply (companies going to market in 2021 that were slated to launch in 2020). From a buyer’s perspective, there continues to be significant equity capital available for transactions from private equity groups and many strategic buyers, most of which have been "open for business" during the pandemic. From a seller’s perspective, valuations continue to be strong, largely due to significant demand from the buyer universe and somewhat of a "scarcity" of transactions over the past several months. Potential tax law changes with the new administration could also have an impact on the number of transactions in 2021 and overall timing throughout the year.
Key 2020 Themes
Strategic buyer activity led the charge in 2020, with a 7% increase compared with 2019, while financial and hybrid buyer activity decreased 26% and 20%, respectively. On the sell side, corporate seller activity (e.g., corporate carveouts) increased 3% compared with 2019, while private equity and private seller transactions decreased 30% and 6%, respectively.
The two smallest end-market segments from an M&A volume perspective, medical and automotive, increased 52% and 15%, respectively, during 2020. M&A activity within the two largest segments, industrial plastics and plastic packaging, decreased 14% and 11%, respectively, during 2020. Within the industrial plastics segment, extrusion and resin/compounding were particular bright spots. Within medical and automotive, injection molding and extrusion drove the increase in transaction volume during 2020.
M&A activity involving only four out of the 10 plastic processes tracked by Stout were flat or up during 2020. Two of the largest process segments, resin/compounding and injection molding, increased 19% and 9%, respectively, while rotational molding and prototyping also saw increases.
All three geographic categories saw a decrease in plastics M&A activity during 2020 with cross-border, domestic, and international activity decreasing 15%, 9%, and 2%, respectively, as compared to 2019. Within the U.S. market, plastics M&A activity saw the biggest gains in the packaging and medical end markets, as well as the injection molding, resin/compounding, and extrusion segments.
The U.S. stock market saw a historic rebound during the final three quarters of 2020 after starting the year with one of the worst quarterly declines in history. For the full year 2020, the Dow was up approximately 7.2%, while the S&P 500 and Nasdaq were up 16.3% and 43.6%, respectively. Since the trough on March 23, 2020, the Dow, S&P 500 and Nasdaq were up 64.6%, 67.9%, and 87.9%, respectively. Within the plastics industry, seven of eight plastics industry sectors that Stout tracks were up for the full year 2020. From a multiple perspective, Stout’s medical, building products and automotive indices saw the largest increase during 2020.
Large price fluctuations also occurred for crude oil and natural gas, with crude oil down 23.7% for 2020, while natural gas was up 16%. Pricing for many commodity resins increased during 2020, while pricing for certain engineering grade resins was mixed.
Key macroeconomic indicators such as GDP, consumer confidence, and unemployment also were severely impacted during 2020. The long-term impact and timing to recovery continues to be uncertain given the continued challenges surrounding the COVID-19 crisis.