The converting industry, like many others, is changing rapidly. Globalization and increased competition have taken a toll on many smaller companies. Not only that, to compete in the modern world of business, mergers, acquisitions, and takeovers have become quite common.
In this article, we’ll take a quick look at the state of mergers and acquisitions in the converting industry and discuss the factors that are driving this trend.
The Numbers and Trends Behind Consolidation
According to a study by Tom Blaige, of Blaige & Company, 58 percent of the top 50 US companies in the plastic manufacturing segments have been completely eliminated or have been merged or sold since 2001.
Typically, this level of activity is uncommon in the converting industry, which only really started in the late 1940s, after World War II sparked further research into plastics.
According to Blaige, there are three primary factors driving consolidation.
- Globalization – Modern international brands expect their suppliers to have a global reach, which is one of the reasons that M&As among international companies have risen. According to the aforementioned study, international-only deals have increased by 5% from 2001-2012, reflecting the ongoing worldwide trend of increased globalization.
- Fragmentation – Because of a high level of fragmentation in the US plastics processing industry, some consolidation is natural. There are 1,450 total US plastics processors. Only 3% of these companies have sales in excess of $500 million. Companies selling $50-500 million make up 19% of the market, and 78% of companies have sales of under $50 million.
- Plenty of investment capital – Private equity investment has grown nearly tenfold over the past decade, to over $432 billion, and some of this equity is being leveraged in the plastics processing industry.
Could Increased Capacity Be the Key to Survival in Plastics Processing?
Most of the businesses that could be sold or driven out of business have revenues of under $50 million. However, Blaige is convinced, if these smaller companies can climb to $100 million or more in sales, they may be in a better position if an economic crisis, or another unexpected “Black Swan” event occurs in the near future. He recommends a merger or acquisition as one of the best ways to do this.
It remains to be seen just how much consolidation activity will continue to occur in the converting industry. We can only wait and continue to observe today’s trends as they continue to change.