M&A Pros and Cons

UNITED STATES — Recent mergers and acquisitions signal that the plastics industry is prone to consolidation, particularly processor and mold manufacturers.

Several factors contribute to this recent trend including the recession in 2008, causing the weaker “mom and pop” molders to either shutdown or sell to the larger companies that have the financial power to stay in business and expand customer base during economic uncertainty.

Another reason is that many plastics companies are family run, with the owner either trying to sell the company and retire, or leave it to a successor, the former being more common.

Corporations looking to acquire businesses look for several factors in order to determine a good investment.

For many of those family run companies mentioned earlier, integrating new technologies can be a challenge, but doing so means less cost for the buyer and less training for employees, meaning less time lost.

The technology aspect often translates into the company’s ability to enter new markets; if the transition is a success, it can be appealing to a larger company who may look to become a leader of that market or region.

Management is often seen as the key to success, being able to keep managers who were responsible for years of success requires their willingness to stay onboard and sometimes a contract to stay for a predetermined number of years.

Finally, a company needs customers in order to be successful.  A reliable customer base is a critical factor that all companies look for when considering a merger or acquisition.

In fact, many plastic companies have had customers for so long that the customer may be reluctant to do business with anyone else, including the larger supplier, making a merger the only way to for the company considering the acquisition to start a relationship with those clients.

With The United States leading the world in industrial mergers and acquisitions, now may be a good time for the processors and molder manufacturers to consider selling.

 

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