Investment firm sees opportunity in plastic closure market

By Ahmed ElAmin and Simon Pitman

- Last updated on GMT

Related tags: European market, Europe, European union

PAI Partners' purchase of Crown Holdings' international plastic
closures business, most of which is based in Europe, could help
cosmetics companies there if the investment firm is able to make
the unitmore competitive.

The European market for plastic closures is getting tougher. While the Western European market for plastic caps and closures is growing, the market is consolidating around a few major players. Thistrend means cosmetics companies will have to become less choosy when deciding on a supplier, a problem that could give them less negotiating power.

Plastic closure production is already highly consolidated, with 465 companies involved in the European market in 2004. Analyst AMI​estimates that as many as 200 companies could move out of closure production in Western Europe over the next five years in an already consolidated industry. The leading 10 companies account for about60 per cent of the market and the top 25 account for about 75 per cent.

Companies will exit the business as their larger competitors achieve economies of scale in producing cheaper products, AMI said in a report published in June. The narrowing of choice is exacerbatedfurther by the steep rise in polymer prices during 2004. The cost increases cut profit margins for many in the industry.

Crown​, which claims to have invented the bottle cap a century ago, has decided it does not want to be in such a market.

PAI Partners​ sees an opportunity to gear the company up some more and expand its business further into Eastern Europe. Then like allprivate investment firms the PAI hopes to sell the unit for a big profit.

PAI is a European private equity firm based in Paris. The firm will pay an aggregate price of about $750m (€617m) for the unit. The price includes PAI taking on some of the units debt.

The unit makes plastic caps for containers used for food, beverage, personal-care and pharmaceutical products. It generated $676m (€556m) of revenue in 2004, with about 76 per centoriginating from Europe, Crown stated in a release. Crown's total revenue in 2004 was $7.2bn (€5.9).

The unit has 29 facilities in 15 countries in Europe, the US and Asia, with 3,500 employees. It sells closure products under brand names such as Astra, Bender, Obrist and Zeller.

In a statement PAI Partners said it plans to expand the plastic-closures unit by developing new products, achieving more efficiency through cross-selling between Europe and the US plants andexpanding into Eastern Europe and Asia. PAI said it would look for bolt on acquisitions that could add value to the unit.

About 158 billion plastic closure units were produced in the Western European market last year, making up about 40 per cent all closures. Of these 66 per cent of the plastic closures were for usedfor beverages. AMI estimates the market for standard beverage closures will grow by 6.2 per cent annually to 2009.

Overall the production of plastic caps and closures will grow on average by 5.6 per cent per year, while that for metal will decline by about three per cent per year. As a result plastic closureswill account for nearly half of the market by 2009, AMI says.

France and Germany are the two largest markets, each producing nearly 36 billion closures in 2004, where the market is largely driven by the drinks sector, but Germany is also leading European production centre for the personal care industry.

The company had earlier said it planned to retain the business, despite making some divestments to focus on core businesses such as metal cans. Analysts suggest that the escalating market price of plastic resins - used to make the plastic closures - may have changed management's mind.

The company's reported net sales in the second quarter of 2005 rose to to $2 billion, a 9.9 per cent increase over the second quarter of 2004. North American net sales rose eight per cent to $808m,while the European division's net sales grew 10.1 per cent to $1,097m. The company's Asia division's net sales increased 21.7 per cent to $112m.

As of 31 December 2004, the company operated 185 plants located in 43 countries, employing about 27,500 people.

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