NEWBURY, Ohio—Activity on the acquisition front within the rubber industry probably will be strong in 2013 but down slightly from 2012.
Acquisitions expert William Ridenour said that will be the case in the U.S. because of a change in the tax law. The top capital gains tax on transactions increased to 20 percent from 15 percent, along with a 3.8 percent surtax levied against high wage earners on investment income to help fund the Affordable Health Care Act, known as "Obamacare."
His company, Poly¬mer TransAction Advisors Inc., helped com¬plete several trans¬actions in 2012 aimed at "taking advantage of the 'tax window' of the lower tax rate to close no later than Dec. 31," he said. Polymer TransAction, based in Newbury, advises companies involved in mergers, acquisitions and joint ventures across the globe.
Those that beat the deadline saved themselves a considerable amount. "The tax difference between 2012 and 2013 on a transaction with a $20 million gain is nearly $1.7 million," the Polymer TransAction president said. "Therefore, we believe that a number of deals that would normally have occurred in 2013 were accelerated to close in 2012 to take advantage of the lower tax rates."
Ridenour expects a 5- to 10-percent decline in the number of acquisitions in 2013.
Otherwise, according to the executive, the flow of completed purchases will remain strong.
In the U.S. that means roughly two dozen could occur, which is close to the normal number of annual transactions, Ridenour said.
He said strategic buyers and private equity groups will continue to participate in acquisitions, principally because interest rates on bank financing are at historic lows.
Companies looking to add businesses under their umbrellas include major publicly owned rubber firms as well as larger privately own- ed operations, along with private equity groups, according to Ridenour.
"Basically, that's the same mix as in 2012," he said.
"Many (private equity groups) are quite interested in the rubber industry, due to the opportunities to consolidate segments of the industry."
In terms of areas within the industry that he expects will draw the most interest, the analyst said firms across the board will be examined by potential buyers. "I do think that compounding and certain areas of processing will be extremely interesting."
As an example, Ridenour cited thermoplastic elastomer blends as a hot segment right now. "Hexpol A.B. and other major companies are hot on the track of these businesses," he said.
Hexpol bought a large compounding competitor, Robbins Holdings Inc., in December, significantly increasing the size of the firm's North American operation and broadening its presence in the agriculture, mining, oil and gas, and other markets.
Areas of the world that he expects to draw the most interest from companies looking to expand include India, the U.S. and Brazil. The U.S. will be a prime target for consolidation and filling out product lines, and Brazil's middle class is rapidly growing, which makes it a strong growth area, Ridenour said.
India is a hot spot because it's experiencing rapid growth, he said. Overall, annual growth within the nation's rubber sector normally is in the mid-teens, he said. "We need to remember that India is modernizing rapidly and that opportunities for what we consider mature markets for rubber are expanding explosively in India."
Polymer TransAction has expanded into India, setting up an office in Mumbai that's managed by G.G. Trasy, a company senior executive.