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© Copyright 2018 All Contents Blaige & Company 1

2018 October Meeting

Western Plastics Consolidation:Strategies for Independents to Survive and Thrive

Norwalk, California

October 23, 2018

© Copyright 2018 All Contents Blaige & Company

Agenda

2

Independents: Survive and Thrive Western Plastics Consolidation

I. Global Consolidation Trends (the “Science”)

II. Special Issues in Western Plastics M&A

III. Options in Western Plastics M&A: Financial vs. Strategic

A. Financial Options

B. Strategic Options

Global Consolidators

Privately Held/Family Ownership

Sigma Case Study

JV

IV. Western Plastics M&A Strategies for Success (the “Art”)

Prior to the Transaction

During the Transaction

V. Recommendations & Conclusions

VI. Appendix

I. Global Consolidation Trends

(the “Science”)

3© Copyright 2018 All Contents Blaige & Company



4

Plastics Deal Volume Way Up in Past Seventeen Years: Plastics M&A

volume doubled from 2001-2017

Packaging sub-segment (shown in gold) tripled during this period reflecting

the relative attractiveness of packaging vs. raw materials and industrials

96 107148

172203 223 201

274248 263

212 222 202257 249

209182

71 50

125115

126138

140

103 140159

162169

138

158 164211

200

4841

96 72

88 64 8570

92118

94

77

91

121 110 101

89

215198

369 359

417 425 426447

480

540

468 468

431

536523 521

471

0

100

200

300

400

500

600

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Industrial Packaging Raw Materials

Average = 429

Source: Blaige & Co. Proprietary Research



5

Sellers Market: Valuation multiples are at record levels

(Mean: 8.7x EBITDA)

Private Equity Buyout Purchase Price Multiples (Deal Size/EBITDA)

6.15.3

4.73.5

4.45.0

4.35.5 5.1 5.4 5.2 5.6

3.7

3.44.1

3.5

3.6

4.2

4.3

3.9 4.34.5 5.2 4.8

9.7

8.7 8.8

7.0

8.1

9.28.6

9.4 9.49.9

10.4 10.4

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Debt/EBITDA Equity/EBITDA Valuation/EBITDA

Source: Pitchbook, Large Deal Universe



6

Fastest Growth: International (BRIC Geographies)

U.S./ International28%

International/ International

40%

U.S. Only32%

2001

U.S./ International16%

International/ International

49%

U.S. Only35%

2017

215 Transactions 471 Transactions




7

Strategic Motivations: 84% of deals are strategic in nature (strategic buyers

& financial add-ons)

Strategic Buyers85%

Financial Platform

10%

Financial Add-On

5%

2001

Strategic Buyers64%

Financial Platform

16%

Financial Add-On

20%

2017

215 Transactions 471 Transactions




8

Small/Independents Fighting Harder: 75% of plastic processors have

sales of under $50 million while approximately 84% have sales under $100

million

Large Cap

(Sales $100mm-$500mm)13%

Mid Cap

(Sales $50mm-100mm)9%

Small Cap (Sales<

$50mm)75%

Mega Cap

(Sales > $500mm)4%



9

Aggressive consolidation amongst large caps are increasing pressure

on small and mid cap processors, particularly on West Coast

Global Plastics M&A 2001 – 2017

Consolidation of 2001’s Top 50 Companies

80%

78%

68%

66%

64%

62%

Blow Molding

Injection Molding

Film & Sheet

Labels

Pipe, Profile & Tubing

Thermoforming

Percentage of Large Cap Companies Consolidated by Segment (Mean 70%)

Source: Blaige, Plastic News


II. Special Issues in Western

Plastics M&A




11

Western US Less Saturated; Higher Growth Potential

Fewer processors/plants versus other geographies

(open market)

Unique Operating Environment Requires Special

Expertise

Firms want partners with proven success

operating in Western US

Barrier: buying is preferable to building;

difficult to operate West Coast

Geography Attractive to Far East Based Acquirers

Excellent Pool of Senior Talent

O

P

P

O

R

T

U

N

I

T

I

E

S

W

E

S

T

C

O

A

S

T



12

Qualified Employee

Scarcity

Environmental and

HR Restrictions

Increased Shipping

Costs in West Coast

Elevated Real Estate

Costs

Energy and Water

Inconsistency

No Straws or Plastic

Bags

Potential Deal Breakers (West Coast Specific)


III. Options in Western Plastics M&A:

Financial vs. Strategic




14

Sale/Liquidity Deal Structure Options Vary by Buyer Type

A. Financial Options (4)

1. IPO – not practical if earnings less than $100mm (Sarbanes-Oxley, Analyst

attention issues)

2. PE (minority interest) – maintain control and preserve legacy, great for

partner buyouts, but leverage and institutional structure is not for everyone

3. PE (platform) – preserve brand and legacy, retained equity provides upside,

but retirement unlikely for 3-5 years; high leverage and pressure to double

profits in 5 years (not for everyone)

4. PE (add-on) – retire quicker but upside unlikely; brand and legacy may not

be preserved

*Most financial buyers have an institutional mindset and spend other

people’s money, which makes them more prone to walk away or

renegotiate at the 11th hour



15

Western Plastics Headline Deals

Financial Buyers Paragon Films to Wind Point Partners – PE platform builder

Leveraged balance sheet; strong price was not highest bid but management gets

equity, and capital partner to accelerate growth

Plastic Package and Stonehenge Partners to Revere Packaging – PE owned niche

leader

Owner retires, retain legacy/brand, strengthen strategic position with expanded

footprint

Free Flow Packaging International to Pregis – PE owned consolidator

Market share fold in, and legacy at risk

Paragon Label and Ingenious Packaging Group to Resource Label Group – PE owned

consolidator

Strong price but limited equity upside, institutional culture – one of 12 add-on

transactions and none included real estate (sellers held)

Shields Bag and Printing Company to Novolex – PE owned consolidator

Owner retires, retain legacy/brand, strengthen strategic position with expanded

footprint



16

Sale/Liquidity Deal Structure Options Vary by Buyer Type

B. Strategic Options (4)1. Merger With or Sale to Mid-cap Private

May avoid institutional structure

Combining two family businesses may bring management, culture, and legacy

issues (i.e., Shurtape)

2. Sale to Large Private Consolidator

Possibly provide strategic value and strength

With flexibility to get upside, maintaining brand, culture, and legacy issues (i.e.,

Sigma)

3. Sale to Global Consolidator (domestic)

Strategic value and strength

May bring management, culture, legacy and brand conflicts (i.e., Berry)

4. Sale to Global Consolidator (foreign)

Strategic value and strength

May bring more significant Management, culture, legacy and brand conflicts due

to different backgrounds (i.e., Inteplast)



17

Western Plastics/Other Headline Deals

Global Consolidator Deluxe Packages and Bemis to Amcor – global consolidator

Max value, but legacy, culture/integration issues, and layoffs

Richmond Holdings to Illinois Tool Works – global consolidator

Max value, but legacy, culture/integration issues, and management motivation

AEP Industries and Atlantis Plastics to Berry Plastics Group – global consolidator

Mid value, but legacy, culture/integration issues, and layoffs

Capri Packaging, Ultra Flex Packaging, Flexstar, Robbie Manufacturing, and Coveris to

TC Transcontinental – global consolidator

Mid value, but culture/integration issues

Peninsula Packaging to Odyssey Investment Partners to Sonoco Products – global

consolidator

Mid value, but legacy, culture/integration issues, and management motivation



18

Western Plastics/Other Headline Deals

Private Strategic Buyer

Poly Pak Packaging, Western Concord, Mercury Plastics, Apple Plastics,

Orange Plastics, Republic Bag, Santa Fe Packaging Corporation, Excelsior

West to Sigma Plastics Group – Private consolidator

Maintain legacy, culture, and retain ownership

Command Packaging and Encore Recycling to Delta Plastics of the South –

mid cap private buyer

Preserve family culture, expand footprint and recycling capabilities

Syntac to Shurtape – mid cap private buyer

Strong price was not highest bid, but management gets incentives, legacy

preserved with family culture, and partner to accelerate growth



19

Successful Western Plastics Consolidation (8 of 33 Deals) Case Study:

Year Activity Total

1991 Acquired Union Carbide Canadian films business 1

1992 Acquired Great Eastern Plastics 1

1994 Acquired South Eastern Plastics 1

1996 Acquired Essex Plastics 1

1998 Acquired Biostar Films, Bio Industries, and Aargus Plastics 3

1999 Acquired Roll Pak U.S. stretch film business 1

2000 Acquired Poly Plastic Products 1

2003 Acquired Apple Plastics, Orange Plastics 2

2004 Acquired Mid-Atlantic Bag, FlexSol NC plant, Target Plastics, Republic Bag [Blaige & Company] 4

2005 Acquired PCL Packaging Coastal Division [Blaige & Company], Filmtech 2

2006 Acquired Mercury Plastics 1

2007 Acquired Allied Extruders 1



20

*Blaige also involved in 1999 recapitalization of Delta Plastics and Essex Plastics

(Flexsol) and 2002 sale of Epsilon – Opti- Films to Sealed Air

Year Activity Total

2009 Acquired ISO Poly Films [Blaige & Company], Santa Fe Extruders, and FlexSol 3

2010 Acquired McNeely Plastics 1

2012 Acquired Coast Poly Corp 1

2013 Acquired Fordham Poly-Pak's laundry and dry cleaning division; Acquired Southern Film Extruders Ltd. 2

2014 Acquired Excelsior Packaging [Blaige & Company] 1

2015 Acquired Tara Plastics Corporation [Blaige & Company] 1

2016 Acquired Alliance Barrier Films 1

2017 Acquired BJK Flexible Packaging 1

2018 Acquired Poly Pak America, Western Concord, Joint Venture with King Pac forming Sigma Stretch Film of Asia [Blaige & Company] 3

Total 33



21

Sigma: USA Bangkok, Thailand: $55mm

Zummit Plastics: Mexico Phoenix, USA

Inteplast: Taiwan Charlotte, USA: $18mm

Scientex: Malaysia Phoenix, USA: $25mm

Global greenfield expansions are affecting the stretch film competitive

landscape, especially in Western Geographies


IV. Western Plastics M&A

Strategies for Success (the “Art”)




23

Prior to Transaction

1. Start Early: Establish a Five Year Plan Consult with Professionals who have actual operating experience in your industry to:

Evaluate your options, establish your target price, structure and terms

Determine what strategic and tactical actions are necessary to achieve target price

and terms

Don’t wait until you are ready to retire

Realize that you may need to stay on for 1 to 5 years

Develop and implement a succession plan

Identify “perks” in the context of a transaction

title, board seat, office, car, club, compensation, real estate lease, protection

of family members, key management in the business



24


2. Implement Actions to Create the Most Appeal to Potential Investors Maintain Operations

Don’t milk value out by underinvesting in PP&E

Maintain core infrastructure

Invest to accommodate capacity required over next 2 years

Complete major capital investments 6 months prior to transactions

Benefits can show up in earnings

Invest in technology and systems which are at least comparable to competitors

Establish well developed “metrics” to operate the business, know how you “stack up”

Market Leadership

Clearly define your niche, communicate internally and externally

Strengthen position and maximize share of core market niche

Establish meaningful presence in new markets

Concentrate on growing markets

Minimize Customer and Supplier Concentration

Establish customer integration and intimacy – deep knowledge and broad contacts across

both organizations

Establish sole source positions, value versus price orientation, high switching costs

Obtain written contracts



25


3. Capture Value Typically Realized by Buyers

Create Internal Liquidity, Efficiency

Aggressively manage working capital

RE sale/leaseback, unload marginal operations

Pay down as much debt as possible

Consider Acquisition Opportunities

Identify, visit and create “warm” acquisition opportunities

Opportunistically acquire a competitor, product line or technology



26

During Transaction

1. Establish and Stick to a Strict Marketing Strategy Don’t Do It Yourself

Negative signals: appearance of weakness and lack of sophistication to professional buyers Distracting: focus on maximizing performance of the business Effective execution essential: can add millions to the price

Hire a firm that understands your business and deliver the best buyers/investors Ego factor: all owners “negotiate every day”, “personally know the best buyers”, don’t want

to be “on the market”, and already have a “staple of buyers”, who can “quietly” do a “quick deal”

Don’t Assume that competitors, employees, and most likely buyers will provide the best deal

Do Most Likely Buyers Pay Top Price?

No

87%

Yes

13%



27

During Transaction

2. Create Competition Through a Highly Orchestrated Process Put yourself in charge of selecting your partners, not vice versa

Establish position of strength in negotiations

Minimize risk of “broken deals” after the LOI is signed

LOI best case scenario: only to be reduced as due diligence proceeds

Purchase agreement contains one line indicating what you receive, 50+ pages indicated

what you may give in return

Lack of Competition = “Broken Deals” at Worst Times

Seller

Buyer

ManagementPresentation

MultipleOffers

LOINegotiation

Exclusivityto Buyer

Closing

Lev

erag

e



28

During Transaction

3. Effective Positioning is Critical

Detail strengths and opportunities in a thoughtfully prepared Confidential

Memorandum

Focus on the future potential and synergies, not past history

Involve key managers – they must “own” the process as much as you do

to maximize value

Identify and address the negative issues up front

Prepare a compelling Management Presentation to showcase your team’s

vision and capabilities

Absolutely do not miss your budgets during the process



29

During Transaction

3. Effective Positioning is Critical

Franchise value can far exceed financial value

M&A

Valuation

Lowest

Highest

Valuation

Multiples

Lowest

MultiplesHighest

Multiples

Market Share Fold-ins

Key Customer Relationships

Geographic Market Expansion

Complementary Products

New Product or Market Beachhead

New Brands or Franchises

New Technologies



30

During Transaction

4. Do Not Establish an Asking Price

The party which mentions price first is disadvantaged

An asking price establishes a ceiling on value

Franchise value can far exceed financial value

Non cash, deferred consideration and retained ownership can provide

opportunities to achieve the highest overall price

Negotiation of soft value issues should be done early in the process

Real estate may be an issue, especially on West Coast

Negotiation of escrows, indemnification caps, baskets and survival

periods should be done prior to signing an LOI



31

During Transaction

4. Do Not Establish an Asking Price

A single offer is likely to converge at 70% of the final price

Imperfect Market

Serious Indications of Interest

(typically 10 data points)

0%

15

%

30

%

45

%

60

%

75

%

90

%

Valuation (% of Final Transaction Price)

Nu

mb

er o

f B

uy

ers

Final Transaction Price


V. Recommendations &

Conclusions




33

“The merger business is 10%

financial analysis and 90%

psychoanalysis”

- Financier: The Biography of André

Meyer: A Story of Money, Power, and

the Reshaping of American Business

The Art Versus the Science of Deal Making



34

Summary Recommendations: Western Plastics M&A

Have Succession Plan in Place

Pursue Niche Leadership, Differentiated Business Model

Family Funding May Require to Double or Triple Down to Stay Competitive

Vertical, Horizontal, Geographic Integration Trend May Affect Margins and

Growth

Focus on “Glass Half Full” Buyers Who View Your Business as

Complementary (to expand, not take it apart)

Never Pursue “One-off Deals”, Create Options and Select the Best Overall Fit


VI. Appendix



VI. Appendix: Blaige & Company

36

Pure Focus: Award Winning Business Model

Blaige and Company has been a sponsor for the Plastic News Processor of the Year

Award for over a decade. 2018 marks the most recent year Blaige & Company was the

exclusive sponsor of the Plastics News Processor of the Year Award and participated in

the judging panel and analyzed each of the finalist’s financial performance and strategies.

With our specialization in the industry, Blaige & Company possesses the industry

knowledge and is uniquely qualified to evaluate companies qualitatively, strategically, and

quantitatively as well as advocating the companies benefits to others.

Petoskey Plastics Inc. Plastic Components, Inc. Innovative Injection

Technologies

2018 Processor of

the Year Award



37

Pure Focus: Award Winning Business Model

© Copyright 2018 All Contents Blaige & Company 38

Thomas E. Blaige, Chairman & Chief Executive OfficerEstablished by Mr. Blaige in 2003, Blaige and Company is an international investment

banking firm dedicated exclusively to the plastics, chemicals, and packaging. Mr. Blaige has

over 30 years of transaction experience, has completed over 200 transactions, and has visited

over 600 plastics, packaging, and chemical operations in all parts of the world. Blaige Plastics

M & A Deal research sets the industry standard. On average, Blaige and Company

proprietary research department compiles and analyses over 500 worldwide plastics,

packaging, and chemical industry transactions annually. U.K. based magazine Acquisition

International named Mr. Blaige Sector Focused C.E.O. of the Year in 2015, and Blaige and

Company was Sector Focused Investment Bank of the Year in 2013, 2015, and 2017. Blaige

and Company sponsored the coveted 2017 Plastics News Processor of the Year Award, and its

involvement dates back to 2007.

Mr. Blaige’s transactions experience includes strategic combinations with large global consolidators; the sale, acquisition

and recapitalization of family owned companies and corporate divisions; corporate divestiture and spin-off transactions;

and private equity portfolio divestitures and acquisitions. Prior to founding Blaige & Company in 2003, over two decades

he was a leading senior transaction professional with Lazard Middle Market, Lincoln International and a middle market

M&A unit of a Wall Street investment bank. He was also a private equity investor with Prudential Capital Group where he

specialized in management buyouts and buildups of privately held businesses and corporate divisions and worked with

several early pioneers in private equity.

Tom is a member of the Western Plastics Association, Plastics Industry Association, and the Society of Plastics Engineers.

He is also a member of the Association for Corporate Growth and the Turnaround Management Association. Tom earned

a Master of Management degree, with Distinction, from the Kellogg Graduate School of Management at Northwestern

University, where he was elected to Beta Gamma Sigma, and a Bachelor of Business Administration degree from Loyola

University in Chicago. He has been certified as FINRA Series 24 Securities Principal and a Series 7 and 63 Registered

Representative.



VI. Appendix: Client Testimonials

39

“We hired Blaige and Company after entertaining a preemptive offer for Paragon Films. Not only did the Blaige

team achieve a result which significantly exceeded the preemptive offer, but it also exceeded our expectations based

upon traditional market valuation metrics. Thoughtful positioning of the unique features of Paragon and the

potential to significantly expand upon them in the future led to a maximum valuation and the opportunity for key

management to become owners. The Blaige team also secured a multitude of attractive offers and permitted our key

management team to select the partner which best matched our values, had experience to perpetuate the legacy of

Paragon, and to take the Company to the next levels of success in years to come.”

Mike Baab, Founder and former President & CEO of Paragon Films, Inc.

“Following a thorough search for an industry expert, Shield Pack management and their Private Equity partners

chose the Blaige & Company team to evaluate our strategic options. The result of the process far exceeded our

expectations due to a great extent to their deep understanding of the packaging industry and very effective

positioning of our operational and product opportunities. We could not have been better prepared or more

professionally represented in our marketing efforts and our negotiations with the winning bidder, Bemis, the largest

flexible packaging company on the continent. I would highly recommend the Blaige & Company team to those

seeking quality execution and extraordinary results.”

George Smith, Chief Executive Officer of Shield Pack, LLC (a portfolio company of Tuckerman Capital & Pegasus

Capital Group)

“My experience with Tom Blaige covers over 15 years and involved more than 25 transactions. In every event, Blaige

& Company delivered outstanding results and exceeded my client’s expectations!”

Maryann Waryjas, Senior Vice President, Chief Legal Officer and Secretary of Herc Holdings, Inc.

“Hiring Blaige not only allowed us to achieve the top of our target valuation range, but also increased the certainty

of closing the deal by bringing in multiple competitive bids.”

Jim Kaye, Chairman of Plastic Package Inc


VI. Appendix: Client Testimonials

40

“As a privately held, family company, we at Commodore were not seeking to sell. Over time we had received several

preemptive offers that held some interest for us. We decided we needed professional guidance, and turned to the

Blaige team. Blaige was instrumental in helping us position the company and create a competitive process which

eventually generated an excellent offer. The final result was a deal structure which was excellent for our family and

our employees, and met our expectations in every regard.”

Brad Braddon, Chief Executive Officer of Commodore Plastics, LLC & Commodore Technology, LLC

“Hiring Blaige & Company was one of the best decisions of my life. The team’s work ethic, energy, and knowledge

of the market were invaluable in achieving a result that significantly exceeded my expectations, and would not have

been achieved without professional representation by the Blaige & Company team.

Kurt Ross, Owner and Chief Executive Officer of Grayling Industries

“The transaction we completed with Blaige & Company couldn’t have gone more smoothly nor closed more

quickly. All involved on both sides, worked extremely well together as a result of the Blaige & Company methodical

process. The Blaige & Company team did a great job in working with all parties to orchestrate the sale.”

Patrick Whelan, Managing Director of Pegasus Capital

“We hired Blaige & Company after entertaining several one-off proposals from potential partners and investors.

The Blaige & Company process involved a very methodical and thoughtful approach to positioning our company

and resulted in multiple offers from a variety of investors, and ultimately a final offer that significantly exceeded our

expectations, and with a local partner we would have never found on our own.”

Lewis Farber, Owner & President of Farber Plastics, Inc.


VI. Appendix: Contact Information

41

Thomas E. Blaige | [email protected]

Chicago

One Magnificent Mile

980 N Michigan Ave., Suite 1080

Chicago, IL 60611

(312) 337-5200

Miami

Brickell Arch Plaza

1395 Brickell Ave., Suite 800

Miami, FL 33131

(305) 290-4650

www.Blaige.com

Blaige and Company Video

mailto:[email protected]

http://www.blaige.com/

https://www.youtube.com/watch?v=kCXpIyv7SMQ&feature=youtu.be

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