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."