Another trend noted by finance professionals in the first half of the year was the resurgence of strategic industry buyers versus private equity (PE) buyers, who have had a larger share of total deals in recent years.
PMCF data showed that PE activity in plastics and packaging declined in the first half of the year for the first time in five years, falling from 74 transactions in the first half of 2019 to just 43 in the first half of 2020, likely affected by PE opening up for successful deals new funding is required.
“The credit markets are challenged right now and funding is less of a problem for strategic buyers,” said Hart.
Blaige was more dull in his assessment. “Private equity was scared in the first half of the year,” he said. “It was like they saw an alligator and got out of the pool.”
PE firms “were looking for reasons to leave,” added Blaige. “Strategics had lines of credit and access to capital and said, ‘Let’s get a deal.'”
Karig said that healthy strategies “usually have an advantage in a market like this – they’re more capable of pushing really hard out of the box.”
Most PE funds were in “triage mode” in March and April, said Grace Matthews’ Hinz, as they focused almost entirely on propping up their existing portfolios.
“Most of the private equity M&A activity we’ve seen over the past few months is add-ons rather than new platforms, partly due to the scarcity of new platform opportunities coming into the market, but also due to a more challenging leverage environment. “
In general, he added, companies that emphasize M&A efforts “are now likely to come out better from the pandemic than those that don’t, and many strategic buyers are realizing this.”
Others said pulling PE from plastic M&A could be a temporary thing. “Private equity has grown in influence over the past 20 years,” said Munson of the MBA. “We are in a long period of low interest rates and it is difficult to get any other return, so there is a lot of private equity.”
“All private equity companies value high growth and trust and know how to take calculated risks,” said Weil von Mesirow. “You’re not going away.”
Hinz also sees a possible recovery for PE. “Private equity firms still have a significant amount of capital to deploy and they are in the business of doing business,” he said. “Private equity investors are also characterized by creative deal structuring, which should enable them to continue to close transactions even in a challenging market.”
At PE firm MPE, Yohe said PE firms continue to have leverage available and those that weather the pandemic well are “well positioned to compete with strategies.”