Strategic deals likely to rule in materials

By Frank Esposito | PLASTICS NEWS STAFF

AKRON, OHIO (Jan. 25, 1:50 p.m ET) — Materials-related plastics deals picked up at the tail end of 2010, with buyers coming from within the industry — a trend that market watchers say should continue into 2011.

Plastics News tracked 10 such deals in the second half of 2010, with half of those occurring in the month of November alone. Globally, for all of 2010, the number of resin, color and compounding deals increased by 21 percent vs. 2009 for a total of 70, according to P&M Corporate Finance LLC, a financial firm in Southfield, Mich.

All but two of the deals tracked by PN involved a buyer coming from an existing materials firm. Globally, Bangkok’s Indorama Ventures Public Co. Ltd. led the way by snagging the North America-focused PET business of Invista for $420 million, and then a month later buying PET resin and yarn businesses from SK Chemicals Co. Ltd. in Poland and Indonesia.

North American compounding leaders PolyOne Corp. and A. Schulman Co. also were active, with each showing a fondness for Brazil. Avon Lake, Ohio-based PolyOne bought a pair of businesses there, while Fairlawn, Ohio-based Schulman bought one as well. Schulman’s deal was its third overall M&A transaction in 2010.

Buyers from outside the materials sector became involved when private equity firm TPG Capital LP bought resin distributor Ashland Distribution of Dublin, Ohio, for $930 million and when Citadel Plastic Holdings Inc. — backed by private equity firm Wind Point Capital — bought compounder QTR Inc. of Evansville, Ind. For Citadel, the deal was its sixth plastics acquisition since 2007.

Moving ahead, financial pros contacted by Plastics News said they believe future interest in plastic materials firms still will be greatest with strategic buyers from within the industry.

Elliot Farkas

“Part of it is scale,” said Elliot Farkas, commercial/industrial group vice president with investment banking firm William Blair & Co. in Chicago. “That’s where strategic buyers have a significant competitive advantage. It’s a different value proposition.”

Exposure to volatility in raw materials and crude oil is “a big scare” to some financial firms that might be looking at investing in plastic materials firms, according to Stewart Kohl, co-CEO with private equity firm Riverside Co. in Cleveland. David Evatz, a director with Chicago financial firm Stout Risius Ross Inc., said that, because major materials deals require more capital, it’s often easier for a strategic buyer to access lending.

It’s also often more difficult for a private equity company or financial buyer to compete with strategic buyers from operating and strategic standpoints, according to Evatz.

Financial investors and private equity firms have had a mixed track record in major plastics materials deals in recent years. TPG profited when it took specialty plastics maker Kraton Polymers public in 2009. But financial firm Access Industries’ heavily-leveraged investment in polyolefins leader LyondellBasell Industries AF SCA ended badly, when a faltering economy led to a bankruptcy filing in early 2009, numerous plant closings and the loss of thousands of jobs.

Strategic buyers also have been active in compounding and concentrates deals because they’re able to source resin and other raw materials more efficiently than an outside company would, according to Bill Ridenour, president of Polymer Transactions Inc. in Newbury, Ohio.

Of course, having available cash and debt capacity — as Schulman did in its deals this year — also helps, Ridenour noted. PolyOne and Holden, Mass.-based Clariant Masterbatches also are strong in that regard heading into 2011, he added.

“I don’t think Schulman even had to go to a bank, so the question of financing was irrelevant,” Ridenour said.

SOURCE: PLASTICS NEWS

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