Private equity sponsors are proving their worth as buyers and builders of businesses in plastics and packaging—a market expected to see increased deal flow as sponsors look to identify and grow platforms and capitalize on a favorable exit window.

A total of 341 sponsors have invested in 274 plastics and packaging businesses since 2005, with the inventory of investments growing. According to PitchBook, there are a total of 229 companies currently held in private equity portfolios, with the median holding period extending beyond six years in 2013, suggestive of more exit activity on the horizon.

Sponsors are taking advantage of market dynamics favoring sellers and capitalizing on an exit window that remains wide open for differentiated businesses. Fueling investor appetite is a favorable demand outlook, evidenced by a sustainable recovery in major plastics end markets. Sponsor-to-sponsor buyouts saw the highest level of activity in four years in 2012, more than doubling from 2011 and surpassing strategic buyer sales for the first time. IPOs made headlines with packaging giant Berry Plastics (Apollo Global Management and Graham Partners) and Ply Gem Industries (CI Capital Partners) completing IPOs within the last twelve months.

Add-ons remain an important tool in value creation, with activity driven by surplus capital. Sponsors are aggressively pursuing synergistic buys that bring technology and capability expansion and access to new markets. Add-on activity has comprised a healthy 40 percent of private equity deal flow in plastics and 53 percent in packaging so far in 2013.

Selected investments include Imperial Plastics (Goldner Hawn Johnson & Morrison, July 2012 acquisition financing), Fabri-Form (Resilience Capital Partners and Littlejohn & Company, July 2013 add-on to Penda), and KubeTech Custom Molding (Sun Capital Partners, December 2012 buyout).