Published in Manufacturing

‘STILL STRONG’: M&A helps plastics manufacturers diversify, find growth

BY Sunday, November 10, 2019 07:30pm

Mergers and acquisitions activity among plastics manufacturers has been uneven as the supply of assets shrinks, demand grows and threats to the economy build. 

Yet despite the market turbulence, M&A advisers say valuations are holding up, especially for value-added business. 

Left to right: Rua, Miller COURTESY PHOTOS

Investment bank NuVescor Group LLC currently is working with two clients who are selling their plastics manufacturing businesses, although the companies are approaching the sales from different perspectives.

“One of them is doing about the same as last year and then the other one has actually declined because they’ve built up a lot of capacities,” said Randy Rua, managing partner of NuVescor Group and Hudsonville-based Rua Associates LLC. “They added a lot of new presses and kind of built up because they were getting told all this business was coming. Well, it didn’t come.” 

In general, the manufacturing companies Rua has worked with seem to have experienced a slowdown at the beginning of the year but are picking back up now. 

“I’m seeing more plastics companies that want to get into other areas,” Rua said. “What I mean by that is that maybe they just do injection molding, but they also want to get into finishing because they feel like their customers are wanting more full-service shops.”

Rua believes the M&A environment is “still strong” after a period of extended growth for manufacturers. About 80 percent of the clients at NuVescor Group are in manufacturing. 

Private equity

As is the case in other areas of manufacturing, private equity firms also have become active in looking for targets among plastics manufacturers, according to industry sources. 

That was the case last month, when Bloomfield Hills-based Green Light Growth Partners LLC, a newly formed automotive-focused private equity firm, entered into an agreement with automotive supplier Yanfeng US Automotive Interior Systems to buy its Grand Rapids-area operations.

The deal is expected to close next month and will include all assets and operations associated with the facility, which makes plastic interior trim components for the automotive industry. The new business will operate as Kendrick Plastics Inc., as MiBiz was first to report. 

“I formed Green Light about a year ago with the strategy of using and leveraging my expertise in the automotive industry and my relationships throughout the industry to acquire businesses and grow those businesses,” Josh Schulze, managing partner of Green Light, told MiBiz. “This would be the first transaction that we’ve done, but it’ll be the first of many.” 

Schulze previously served as senior managing director at Ernst & Young Capital Advisors LLC, where he led the firm’s U.S. automotive and transportation investment banking practice. 

Green Light will target the automotive industry for supplier manufacturers with revenues between $50 million and $150 million. The firm is seeking deals in which it takes majority control of family-owned or owner-operator companies, as well as corporate divestitures, bankruptcy sales and management buyouts. 

“We’re excited to invest in these businesses further,” Schulze said. 

More opportunity

West Michigan in particular offers many opportunities for buyers looking to acquire owner-operated manufacturing businesses in the $2 million to $5 million range, according to Rua. 

“We do about 30-40 percent of our business in the Detroit area, and it seems like those companies are already past that stage where maybe they were sold and have been consolidated into a bigger organization or they’ve grown past an owner-operator type of business. But in West Michigan, we just have tons of those owners that are in their late 50s, early 60s, some of them in their 70s,” Rua said. “It’ll be interesting to see what will happen to our economy when those transition and how they transition, get absorbed or consolidate.”

In the case of owner-operated businesses, sellers often prefer to sell to another individual that will keep a “small business manufacturing environment,” according to Rua. 

“It’s easy for me to find a big strategic buyer that may just buy (the business) and either move it or absorb it into the organization, so they’re going to lose that history that they’ve had,” he said. “I’m trying to find ways to develop more talent in the manufacturing area for business owners — people that (will) buy these businesses and run them here in West Michigan.”

More activity ahead?

In recent years, buyers, investors, and private equity groups have become more interested in West Michigan companies, said Matt Miller, managing partner of Grand Rapids-based BlueWater Partners LLC

“I think West Michigan has flown underneath the radar for a long time,” Miller said. “There is too much capital chasing too few deals and the private equity groups, in particular, have had to look in new places for good opportunities. Also, there are a lot of family businesses here that are conservatively managed and that’s attractive to investors.” 

Debt and equity continue to be abundant, all while private equity dry powder hit a new $1.54 trillion record as of June 2019, according to a recent report from BlueWater Partners. 

“There’s a lot of capital to fund a lot of deals,” Miller said, noting that valuations remain at or near all-time highs. 

“Certain sectors within plastics are more attractive or interesting than others, like packaging and other value-added processes or companies that are serving markets like medical, aerospace and defense,” he said. 

Although economic growth is slowing and economists are warning of an oncoming recession, growth can still happen through acquisition during an economic slowdown, according to Miller. 

“Certainly, a recession could have a major impact, but if the rate of growth continues as slow as it has been in the last few months, I think that’s less concerning to buyers and investors because through an acquisition, you can still acquire talent (and) you can still diversify your business,” he said. 

Consumer confidence is a greater sign of a decelerating M&A environment than the overall economy, he added. However, while buyers and sellers may not know when the next economic shift will come, they both can be triggered now by its inevitability. 

“Some of our clients are deciding to execute on one alternative or another because it’s been a long expansion and we all seem to agree that we’re getting closer to the next contraction,” Miller said. “Many of them don’t want to wait through the next downturn.” 

Read 4282 times Last modified on Tuesday, 12 November 2019 09:52
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