Financial Buyer Activity Surges in Q3 2017

October 19, 2017

Financial buyer M&A activity within the plastics industry surged during the third quarter, increasing 60% year over year (YOY), with particularly strong growth related to injection molding and materials transactions. In addition, hybrid buyer activity (private equity-owned strategics) saw a 47% increase in M&A activity, YOY, across a number of end markets and processes. Overall, global plastics industry M&A activity declined 12% during the third quarter, YOY, driven primarily by fewer cross-border transactions and less strategic buyer activity. For the first nine months of 2017, global plastics industry M&A activity is down 7%, YOY, although domestic activity is up 1% for year. The 105 transactions during the third quarter was still in-line with the historically high quarterly average achieved over the past several years.

KEY Q3 THEMES

  • Continued strong overall plastics industry M&A activity, particularly in the U.S. market
  • Stock market and overall valuation levels remain at or near all-time highs
  • Continued low cost of capital and high level of availability
  • Private equity sales and acquisitions of plastics businesses increased
  • Machinery and extrusion/specialty converters saw increased M&A activity
  • Industrial injection molding M&A activity increased
  • Potential hurricane-related price impacts for certain resins
  • Key macroeconomic indicators remain strong

Stout Proprietary M&A Database Highlights

BUYER AND SELLER TRENDS

Financial and hybrid buyers led the charge during the third quarter, posting 60% and 47% increases in plastics M&A activity, respectively, YOY. Strategic buyer activity was down 34% during the third quarter, YOY. On the sell side, private equity firms continue to be active with sales of plastics companies increasing 13% during the third quarter, YOY. Corporate and private seller activity was down 32% and 5% during the third quarter, respectively, YOY.

q3 2017 plastics m&a volume

END MARKET ACTIVITY

Plastic packaging M&A activity continues to show the most strength with a slight 4% decline for the quarter and a 22% increase for the first nine months of 2017, YOY. Industrial plastics M&A activity also saw a slight decrease for the quarter, declining 6% YOY, although industrial injection molding activity increased 26%, YOY. Automotive and medical M&A activity saw a more significant drop, declining 50% and 46% during the third quarter, respectively, YOY.

ACTIVITY BY PROCESS

M&A activity involving seven out of the 10 plastic processes tracked by Stout declined during the third quarter, although year-to-date only four out of 10 were down. Bright spots for the quarter include machinery and extrusion/specialty converter transactions, which increased 40% and 8%, respectively, YOY. Machinery transactions saw an increase from strategic buyers, while extrusion/specialty converters favored financial buyers.

ACTIVITY BY GEOGRAPHY

Domestic M&A activity continues to be the strength of the market with a 9% decline for the quarter and 1% increase year-to-date. Cross-border and international plastics M&A activity were both down for the quarter and for the year-to-date period. Within the U.S. market, plastics M&A activity increased for plastic packaging and resin/compounding transactions, while private equity was active in the U.S. both on the buy and sell side.

Market Trends

PLASTICS INDUSTRY MULTIPLES

Overall stock market performance continued to be at or near all-time highs during the third quarter with all major market indices up for the quarter and the first nine months of 2017. For the first nine months of 2017, the Dow was up 13.4%, while the S&P 500 and Nasdaq were up 12.5% and 20.7%, respectively. Within the plastics industry, all public company segments continue to maintain relatively high valuation levels, with seven out of eight plastics industry sectors that Stout tracks ending flat or up for the quarter.

MACROECONOMIC METRICS

Key macroeconomic indicators, including GDP, consumer confidence, unemployment and other metrics remained strong during the third quarter. Capital markets continue to be favorable for M&A activity and there remains a relatively low cost of capital environment. Crude oil prices increased 12.3% during the third quarter, although down 4% for the year. Natural gas prices were down 1.3% during the third quarter and 21% for the year. Resin pricing in general is up for the year, with certain material pricing expected to be impacted by the recent hurricanes.

q3 2017 ebitda multiples mean

q3 2017 transaction highlights

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