Private equity losing out in bidding wars

Published on Saturday 5 December 2009 13:12

PRIVATE equity is no longer in a position to price companies out of the bidding for acquisitions, a leading Scottish businessman has claimed.

John Langlands, chief executive of British Polythene Industries (BPI), said 2009 had been a year of continued cost-cutting and reduction of borrowings at the group, following the closure of its factory at Stockton-on-Tees in 2008.

But he said, while there remained scope for organic growth, the company would also keep an eye out for potential acquisition in the expectation that competition from private equity would be less intense.

Langlands, who became finance director of Greenock-based BPI in 1994 and chief executive in 2003, said: "The City certainly thinks acquisitions are coming back and people are looking to do things.

"Private equity will have had a lot more difficulty in terms of raising bank funding to do deals, they are so highly leveraged, whereas we have borrowings of 55 million, and facilities for 113m."

Langlands said in the past it was difficult for a trade business to compete against private equity for acquisitions.

He said: "They paid higher prices, but now there is a better opportunity to compete. It (private equity acquisition] was built on leverage (borrowings] and they are not going to get the same leverage as they had in the past."

Langlands said that as a result, while there was plenty of potential for organic growth at BPI, "if there are acquisition opportunities we will look at them and see what can be done".

The group completed more than 30 acquisitions and disposals between 1994 and 2002, and made its first move into the US with the purchase of AT Films in August last year.

BPI has 40 per cent of its sales outside the UK, with factories in the UK, Belgium, Holland, China and North America.

About 30 per cent of its plastic packaging is supplied to retail food chains, 30 per cent to agriculture in areas such as silage and greenhouse film, and 12 per cent to the construction industry.

"People still associate us with plastic carrier bags, for some reason, but we sold that business in 2002. We are a far more broadly based international company these days," Langlands said.

Meanwhile, he said there was little sign of any rebound in the depressed construction sector next year, with BPI's sales to the industry down 25 per cent in 2009. Brick and block packaging sales were even worse-hit, down 40 per cent.

"We feel the bottom has been reached in construction, but we are not brave enough to say its coming back," Langlands said.