CompositesWorld
Issue link: https://cw.epubxp.com/i/930524
FEBRUARY 2018 8 CompositesWorld COMPOSITES: PAST, PRESENT & FUTURE » During 2015 and 2016, the composites industry saw such impressive activity in mergers and acquisitions, it was perhaps to be expected that, in 2017, we would see a dip in transaction levels, especially given the global regulatory uncertainty and the impact that might have on larger, more complex deals. What we have seen this year, however, is a high level of dealmaking within the specialty materials and advanced composites sectors, because robust growth rates, substantial value propositions and sustainable margins remain attractive incentives for strategic buyers and financial investors. Overall, business M&A; transaction levels declined in the first half of 2017 in the historical centers of composites M&A; activity — Europe and North America. Key median multiples of enterprise value/earnings before interest, tax, depreciation and amortization (EV/EBITDA) for all M&A; transactions decreased slightly in both territories in H1 2017, with Europe down to 8.1x (8.3x in 2016) and North America proving a little more durable at around 10x for the past 18 months. 1 Our research, in late 2017, with a focus on the advanced compos- ites sector, saw that transactions there were not subject to this activity and margin decline. ere was, in fact, a pick-up in deal- making through 2017 that (when 2017's final tally is evaluated) might well get very close to 2015 levels by year's end. Private equity (PE) investors, with their elevated levels of deployable cash, are now taking a larger share of the overall M&A; pie than ever before. However, this is less apparent in the compos- ites market, and they're still the minority player to the large stra- tegic acquirers, with their strong balance sheets and investment cash reserves. M&A; activity in speciality materials this year included high- lights, such as Evonik's early 2017 confirmation of its acquisition of Air Products' speciality additives business, along with its US$630 million purchase of JM Huber's silica business. In this column, we have chosen to look in greater depth at the advanced compos- ites M&A; transactions in the past 12 months, certain key transac- tions and sectors and some important industry trends that have appeared. Consolidation in aerospace supply chains Aerospace composites M&A; transactions continue to lead the way financially, with probably the two largest deals completed in 2017 coming from the aero interiors segment. Zodiac Aerospace (US$8.2 billion announced value acquisition by Safran) and B/E Aerospace (US$8.6 billion announced value acquisition by Rockwell Collins) were both market leaders in interior components and systems, and although their acquisitions have been publicly portrayed as adding diversity to the customer mix and product portfolio 2 , it also seems likely the OEMs have been, to some extent, encouraging consolida- tion, with the expectation that the resulting larger, more robust and increasingly agile players can provide a more cost-effective supply chain to support the OEMs' challenges, such as increased growth rates and moves into newer markets. Vertical integration and a focus on components In contrast to aerocomposites, the automotive composites space is in a relatively early stage, with a more diversified supply chain. It was interesting to note that several key composites players, histori- cally strong in automotive, added further component production, engineering and design capabilities to their market offerings in the past 12 months. Altair formed Altair Engineering Finland with the purchase of Componeering, the Helsinki-based structural analysis specialist and developer of the composite design and analysis tool ESAComp, in September 2017. Mitsubishi Rayon Co. Ltd. (MRC), currently the leading global producer of carbon fiber sheet molding compound, acquired all shares of Seattle-based Gemini Composites in March 2017 via its California subsidiary Mitsubishi Rayon Carbon Fiber and Compos- ites Inc. Adding Gemini's breakthrough product development approach, design skills and expertise with forged composites parts were confirmed as the main drivers for MRC's strategic acquisition. In the crowded parts-and-systems field, we have highlighted two recent deals that illustrate the strategic importance of this area and its diversity in terms of processes and scale. January's US$825 million acquisition of Continental Structural Plastics Holdings Composites bucking the market trend in M&A; The 2015-2017 M&A; deal count shows that the fragmented center of the carbon fiber composites supply chain — those who (left to right) sell carbon fiber/resin intermediates, such as prepreg (19), and mold parts from carbon fiber and resin (51) plus those who supply resin (22) and equipment (15) to those who mold parts or assemble systems — were the most acquisitive. Source | PitchBook, FMG M&A; Database