DuPont's Spectrum purchase could bolster medical offerings

DuPont Co. has made a major downstream move into plastic products by acquiring Spectrum Plastics Group for $1.75 billion.

Market analysts contacted by Plastics News said that DuPont should benefit from the acquisition, although there was a chance that the deal could put the firm in competition with some of its customers.

"In terms of the attractiveness… processors with medical markets exposure such as Spectrum have consistently ranked at or near the top of the list for buyers," said Phil Karig, managing director with Mathelin Bay Associates in St. Louis.

"Barriers to entry such as regulatory approvals along with steady and recession-resistant growth … are key factors supporting continued interest—and high EBITDA multiples," he added.

The purchase price represents a multiple of 15.6 times Spectrum's 2023 forecast EBITDA.

While DuPont is paying a healthy multiple for Spectrum, Karig said DuPont also has the built-in advantages of a strategic buyer. Namely, the firm can find "potential synergies" with its existing medical business, such as lower costs and expanded product offerings.

For DuPont, the deal is a way to increase sales volume for Tyvek and silicone products, according to Peter Schmitt, managing director with Montesino Associates L.L.C. in Wilmington, Del. He described Spectrum as "a classic private equity rollup."

"The question now is how DuPont manages supply chain conflicts with companies that also buy Tyvek and silicones from DuPont," Schmitt added.

On a conference call with stock analysts, DuPont Chairman and CEO Ed Breen said Spectrum in the last year "has put in a fair amount of new production capacity that's getting filled up because just the growth rate."

"You think about four years in a row of 10 percent. …They have a fair amount that they're just completing on the factory expansion side," he added. "As we fill up those assets and get them utilized, [that] will drive margins up."

DuPont Chief Financial Officer Lori Koch added that DuPont "sees a really nice sweet spot of being able to leverage the two portfolios."

"(Spectrum) has really nice positions with the medical device [firms], and we've got really nice positions in biopharma," she added. "Being able to bring our two portfolios together to leverage our expertise in material science across the broader portfolio is where we see the opportunity for us ahead."

The acquisition caps off a period of heavy activity for both DuPont and Spectrum. Late last year, DuPont ended its bid to acquire U.S. composites maker Rogers Corp. for $5.2 billion because of delays in getting approvals for the deal from Chinese regulators.

Also last year, DuPont sold its Mobility & Materials unit—including its legacy nylon resin line and other engineering resins—to Celanese Corp. for $11 billion. On the products side, DuPont in July opened a new Liveo silicone biopharmaceutical tubing plant at its Cooper River site in Moncks Corners, S.C.

Spectrum has made three acquisitions since 2020. Last year, the firm invested in advanced additive manufacturing production and expanded clean room operations at its plant in Mexicali, Mexico.

In 2022, Spectrum posted sales of $450 million and EBITDA of $95 million.

Alpharetta, Ga.-based Spectrum is a major extruder of medical tubing and also makes other medical products. Wilmington-based DuPont is buying Spectrum from New York-based financial firm AEA Investors, which has owned Spectrum since 2018.

DuPont officials said Spectrum has a strategic focus on fast-growing therapeutic areas such as structural heart, electrophysiology, surgical robotics and cardiovascular.

Breen said DuPont "has been focused on Spectrum for a long time." He added that Spectrum "is a compelling strategic complement to our existing health care portfolio. … With this combination, we'll be able to offer customers additional innovation and manufacturing capabilities with a broader and more integrated solution set."

Spectrum formed by the 2017 merger of Pexco L.L.C. and PPC Industries, both of which were owned by investment firm Kohlberg & Co. L.L.C. of Mount Kisco, N.Y.

Less than a year later, AEA bought Spectrum. At that time, Spectrum operated 15 plants in five countries. AEA was founded in 1968 by the Rockefeller, Mellon and Harriman families and manages $10 billion of capital.

Weeks after that deal, AEA spun off Pexco L.L.C.'s industrial custom extrusion operations, selling them to Odyssey Investment Partners. Those operations are no longer part of Spectrum, and are not included in the DuPont deal.

Spectrum makes components and devices for medical and other markets. The firm employs more than 2,200 at 20 global sites, including 14 in the United States.

The company was No. 112 in the most recent Plastics News ranking of North American injection molders with $65 million in sales in the region.

Spectrum also has an estimated $30 million in extrusion sales in the region, placing it at No. 90 in the most recent PN ranking, and its $4 million in mold making puts it at No. 97, according to PN data.

Products made by Spectrum include injection molded parts, flexible packaging and film, extruded tubing, catheters and medical balloons. In addition to medical, the firm sells into industrial, defense and food and beverage.

DuPont officials said that Spectrum's product mix complements existing DuPont products such as Liveo-brand silicone solutions and Tyvek-brand medical packaging. They added that after the acquisition, approximately 10 percent of DuPont's consolidated sales will come from health care.

The Spectrum Plastics deal is expected to close by the end of the third quarter, subject to regulatory approvals and other closing conditions.

DuPont also released first-quarter financial results on May 2. The firm's sales for the quarter were down 8 percent to just over $3 billion, with profit tumbling almost 48 percent to $265 million.

For the quarter, DuPont's sales volume in pounds was down 7 percent. Sales at the firm's Water & Protection unit—including Tyvek products—essentially were flat at $1.45 billion. The unit's operating EBITDA also essentially was flat at $344 million.

On Wall Street, DuPont's per-share stock price was just under $64 in early trading May 4, down about 7 percent so far in 2023.