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    Diversified Industrials Q3 2020

    Q3-2020-Diversified-Industrials

    Industry Trends

    US Industrial Production Rises in Q3

    US industrial production slowed in August with an increase of just 0.4%. This number is down from a 3.5% increase in July and a 6.1% increase in June. Despite the recent growth in production over the summer, industrial production remains 7.3% below in February. Industry analysts believe that production will continue to benefit from further re-openings, but growth could be interrupted by weak demand and virus outbreaks.1

    Raw Materials on the Rise

    After a 20-year low in March of this year, the materials and commodities industries are on the climb , growing 16% this last quarter which is better than any of the other sectors in the S&P 500. Many believe that this growth is correlated to the broader economy and is driven by companies rebuilding after the spring's downturn. The quarter's biggest winners are crop-nutrient producer, Mosaic, and mining company, Freeport McMoRan Inc, with 54% and 47% growth, respectively.2

    Cleveland-Cliffs to Buy ArcelorMittal USA

    In a $1.4 billion deal, Cleveland-Cliff will buy ArcelorMittal USA to become the largest flat-rolled steel producer in North America. This deal is expected to boost Cleveland-Cliffs sales to the automotive market and provide cost synergies. Although US steel prices have started to recover, ArcelorMittal states demand could take more than a year to recover even with massive stimulus measures. Low industry capacity utilization has pressed margins and stressed the importance of production volume, technical expertise, operational diversification, and fixed costs dilution.3

    Aluminum Packaging Supply Shock

    As bars and restaurants have closed across the US, consumers have rushed to local supermarkets to buy drinks. Consumer actions have accelerated a continuing shift to aluminum cans and packaging over the traditional glass and plastic bottles. The resulting supply shock challenges virtually all producers who make anything in the 12-ounce can. Demand has also expanded to tall, sleek cans and canned foods. Some companies are betting that higher demand for canned foods and drinks is here to stay. Overall, the Can Manufacturers Institute says US manufacturers expect to have the capacity to produce 12 billion more cans by the end of the year.4

    Single-Use Plastic Banned in New Jersey

    The New Jersey state legislature passed a broad bill that bans or limits the distribution of single-use plastic carryout bags, single-use carryout paper bags, polystyrene foam foodservice products, and single-use plastic straws. An emphasis on reducing plastics that are difficult to handle in the recycling systems benefits local municipalities dealing with litter challenges. New Jersey joins the eight other states with a comprehensive plastic bag policy (California, Connecticut, Delaware, Hawaii, Maine, New York, Oregon, and Vermont).5

    Largest Transactions Closed

    • Target
    • Buyer
    • Value($mm)
    • Substantially All Assets of Briggs & Stratton Corporation
    • KPS Capital Partners, LP
    • $550.00
    • Georgia Biomass Holding LLC
    • Enviva Partners, LP
    • $175.00
    • 3C Packaging, Inc.
    • Essentra plc
    • $65.00
    • Inland Plywood Company
    • Patrick Industries, Inc.
    • $46.00
    • Portfolio of businesses and assets of TexInnovate, Inc.
    • Ecofibre Limited
    • $42.23
    • Partsmaster, Inc.
    • Lawson Products, Inc.
    • $35.30
    • Substantially all assets of American Development Corporation of Tennessee, Inc.
    • Hawkins, Inc.
    • $25.00
    • HILO Equipment & Services, LLC
    • Alta Equipment Group, Inc.
    • $17.33
    • Operating Assets of T&R Lumber Company, Sullivan & Mann and Kelmar Creations
    • UFP Industries, Inc.
    • $17.00
    • Switchback Group, Inc.
    • Mpac Group plc
    • $15.00

     

    Source S&P Capital IQ as of 10/14/2020 and PCE Proprietary Data

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    Data Assumptions

    This report represents transaction activity as mergers & acquisitions, consolidations, restructurings and spin-offs. Targets are defined as U.S. Based companies with either foreign or U.S. based buyers. Transaction information provided is based on closed dates only.

    Glossary

    EBIT - Earnings Before Interest and Taxes
    EBITDA - Earnings Before Interest, Taxes, Depreciation, Amortization
    LTM - Last Twelve Months
    TEV - Total Enterprise Value

    Sources:

    1. “US Industrial Production Growth Slows, up 0.4% in August,” Associated Press, US News, September 15, 2020.
    2. “The S&P 500’s Hottest Sector: Material,” Paul Vigna, The Wall Street Journal, September 20, 2020.
    3. “Cleveland-Cliffs to Buy ArcelorMittal USA for $1.4 Billion,” Mark Bergen, Eddie Spence, and Joe Deaux, Bloomberg, September 28, 2020.
    4. “Coronavirus is Causing a Can Shortage,” Saabira Chaudhuri, The Wall Street Journal, August 25, 2020.
    5. “New Jersey Passes Sweeping Bill Limiting Carryout Bags, Polystyrene, Foam and Straws,” Cole Rosengren, Waste Dive, September 25, 2020.

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