Experts expect strong M&A activity to continue

By Frank Esposito, Plastics News/

Akron, Ohio-Polymer mergers and acquisitions activity is expected to remain strong in 2004, as the strong euro sparks interest from European firms in North American businesses, according to an M&A professional who specializes in trans-Atlantic transactions.

“With the strength of the euro, we expect to see a lot more activity in the US,” said Jocelyn Bertheau, a partner with Canec International Ltd. of Toronto. “Economic conditions in the U.S. are ahead of Europe, so European buyers can post better results while taking advantage of the currency situation.”

Each euro was worth $1.26 as of 27 Jan. Much of the M&A interest coming into North America from Europe has been from industry buyers, as opposed to the equity buyers who have been active in the US of late.

“Private equity groups have been very active,” said Bill Ridenour, president of Polymer Transaction Advisors Inc. in Newbury, Ohio. “They bought a lot of companies in the 1990s that weren't in the best conditions, and now they're desperate to buy new companies.”

Bertheau and Ridenour met 21 Jan. with Plastics News in Akron. Canec and PTA have an ongoing relationship in putting together North American/European plastics deals.

Ridenour added that terms of US bank lending are “starting to improve a little bit,” and that U.S.-based leveraged buyout firms “are flush with cash because of the stock market and profitable returns.”

“LBOs are starting to think like strategic buyers,” he said. “Even if they don't have a business that fits a potential acquisition, they'll look to make the deal to improve their portfolio.

“More businesses also will be available [in 2004] as large companies divest units in order to bring in necessary capital.”

Canec worked on the 2002 sale of specialty compounder Multibase SA to Dow Corning Corp. Canec also operates a Paris office and does more than 90 percent of its work in M&As, said Bertheau, who has 15 years of plastics experience, after starting his career in the oil and gas market.

PTA's deals include last year's expansion and public offering of ReBase Products Inc., a thermoplastic concentrate maker in Barrie, Ontario.

Bertheau and Ridenour each foresee plastics firms fetching multiples of five to seven times pretax earnings in 2004. Sale prices for custom injection molding firms would be a little lower, at around four times pretax earnings, while prices for compounding firms could be on the high side, at a multiple of 6.5.

The two M&A veterans also said that recent valuations in deals involving Kraton Polymers and Landis Plastics Inc. were “atypical” of the market. Kraton, a styrenic block copolymer maker, was sold to Texas Pacific Group investment firm for $770 million in November. Berry Plastics Corp. landed Landis for $228 million in October.

Berthau and Ridenour said the Kraton deal went for 8.6 times pretax earnings, while the multiple in the Landis transcation was around eight.

“Don't expect to see those kinds of numbers a lot in 2004,” Ridenour said.