AKRON—It's a good time to own a plastics, polymer or specialty chemical company—especially if you're of a mind to sell it.
That could have ramifications for some of the Akron area's big companies, too, including RPM International Inc. in Medina and A. Schulman Inc. in Fairlawn.
"Pricing is the highest that it's ever been—in history, actually—in terms of a multiple of earnings," said Bill Ridenour, founder of North Carolina-based Polymer Transaction Advisors. He founded his firm 18 years ago in Newbury Township, where he still maintains an office, and said he still counts on Northeast Ohio's strong chemical and materials industries for a lot of his business.
Ridenour has represented big buyers, like Schulman and Westlake,Ohio-based PolyOne, in the past, but he most often works with sellers that range from private family owners looking to exit a business to larger companies looking to sell off a division or business line.
He's expecting to be busy, he said, because there is a lot of money chasing plastics companies, driving up prices and inducing more owners to sell.
Some buyers want into plastics to take advantage of the lightweight materials trend in the automotive industry. Some hope to take advantage of what they think will be industry growth driven by new supplies of raw materials from shale drilling, and some are big corporations looking to add to existing business lines or to enter new markets and niches.
It adds up to a market that favors existing owners, in most instances, said Ridenour and others who follow companies in the sector or work to buy and sell them.
"For the last couple of years, there's been a lot of activity in this sector in general. Really, there's been such a supply and demand imbalance in the marketplace," said Kevin Mayer, who, like Ridenour, works in the M&A arena, as managing director of Cleveland-based Western Reserve Partners, part of Citizens Capital Markets.
"There's a lot of cash sitting on people's balance sheets, and there's a lot of private equity money. … It's really been a seller's market," he adds.
Mayer said there are simply not enough sellers to meet the demands of private equity investors and strategic buyers, which are mostly other corporations. That, along with low interest rates and a flood of acquisition capital on corporate balance sheets, is driving up prices.
So what does that mean for big companies like Schulman and RPM International? Likely very different things. RPM is and has long been an acquirer, while Schulman has struggled of late and could be an acquisition target.
Kevin Hocevar, an equity research analyst with Northcoast Research in Cleveland, follows 14 companies in the specialty chemical and buildings materials sectors. He noted how, while the overall sector is doing well, the success is not being shared by all. Even companies in very similar industries, like plastics compounders, are having varying degrees of success.
"PolyOne has done really well. They're up 15 percent year to date, but Schulman is down 7 percent," Hocevar said.
Schulman has been hobbled by troubles that came from its acquisition of Citadel Plastics in 2015—an acquisition Schulman now says was rife with fraud as it sues Citadel's former owners in an ongoing suit to try to recoup its $800 million sale price.
It's also in the midst of a CEO search to replace current chief Joe Gingo, who returned from retirement after the Citadel deal went bad. He's halfway through the two-year stint he agreed to complete upon returning, the company says.
Take those circumstances and add the fact that compounders, like Schulman, are in high demand, commanding high prices, and the pressure to sell likely builds, Ridenour said.
"A company like Schulman, in its situation, is probably being looked at by major private equity groups right now," Ridenour said.
For its part, like most companies asked about a possible acquisition, Schulman is guarded.
"Yes, we can see that it's a busy environment for M&A in the industry. As for A. Schulman, we have openly and consistently communicated that we are looking to improve our performance, while—as always—remaining open to alternatives to enhance shareholder value," said company spokeswoman Jennifer Beeman in email correspondence. "We have a responsible board that takes its fiduciary duties seriously and is focused on driving growth and value creation. Beyond that, it's our policy to not comment or speculate on M&A."
For acquirers such as RPM, the situation is far different. The company is known as an extremely active acquirer of others, but these days—the pickings are slim and prices are high—keeping up the deal flow could be a challenge.
But RPM also has some advantages that other buyers, especially private equity firms, don't: the ability to realize synergies by combining new companies with its existing operations and a reputation for allowing its subsidiaries a lot of operational freedom while providing corporate support.
"I absolutely think they'll continue to be very active," Hocevar said.
For its part, RPM hardly seems concerned it will be shut out of potential deals.
"We've always had to wrestle with high valuations," said RPM vice president of investor relations Barry Slifstein.
"But we offer something that our competitors don't offer: We're a great home for entrepreneurial businesses … Roughly 70 percent of the deals we do are what we would categorize as product integrations.
But even in those deals, we're smart enough to hang on to the entrepreneur who was the innovator," he said.
That sounds like strategic corporate marketing—and it is. But when you check up on RPM's claim, it appears to be true.
John Ormsby, president of RPM's Legend Brands subsidiary in Washington state, said he remained with the company after it was sold to RPM in 2011. He said the company backs up what it says.
"I've been through family ownership, two private equity owners and, by far, RPM is the best and most supportive," Ormsby said.
If everyone, including Slifstein, is correct, there might be a lot of M&A activity ahead that could impact not only companies such as RPM and Schulman, but one of Northeast Ohio's biggest industrial sectors. And, depending upon what happens at a national level, it might be even busier than is now forecast.
"If you see a change in the tax environment, that's certainly going to spur a lot more activity," Mayer predicted.