M&A activity within the plastics industry remained robust for the first half of 2018, a continuation from a highly active 2017. While the number of completed transactions in the first half of 2018 decreased relative to the comparable period in 2017, average transaction value for 2018 increased. We believe that a robust M&A appetite within the plastics sector will continue throughout 2018.
Broader, macro-level factors, including 1) the abundance of low-cost capital available, 2) tax reform, and 3) current and prospective seller(s) taking advantage of the favorable “seller’s market” will continue to drive M&A activity in 2018. Within the plastics sector, growing demand for plastic products, expanding end-market applications (e.g., packaging, container products, building & construction, and medical), and innovations in recycling technology will continue the consolidation trend and drive interest from both strategic and private equity buyers. As strategic buyers struggle to achieve historical organic growth rates, they have turned to M&A to expand product and service offerings, reach additional end-markets and broaden geographic presence. In addition, private equity has increased its activity within the plastics industry and is focused on mitigating the cyclicality of their portfolios, identifying attractive platform investments and satisfying mandates to deploy capital for quality assets. These macrolevel and industry specific trends have yielded unprecedented competitive dynamics between strategic and private equity buyers for a limited number of high-quality assets, leading to high single and, occasionally, double-digit EBITDA (earnings before interest, taxes, depreciation, and amortization) valuation multiples within the sector.
M&A activity within the plastics industry, from both strategic and private equity buyers, should continue throughout 2018, driven primarily by the sector’s attractive underlying fundamentals in combination with the macro-level dynamics of 1) the limited availability of high-quality assets, and 2) the abundance of low-cost capital.
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