Industry Description
The plastic pipe & parts manufacturing industry in the U.S comprises the production of various plastic pipes, fittings for those pipes, and unlaminated plastic profile shapes like rods, tubes, and plates. (NAICS 32612). Excluded from this industry are plastic hose fixtures, plumbing fixtures, and plastic packaging products.
The following are some basic characteristics of the plastic pipe & parts manufacturing industry:
- Plastic pipe & parts manufacturing industry has a combined revenue of $21.4 billion, with a growth rate of 1.4% in 2019-2024
- There are approximately 620 businesses as of 2019
- The plastic pipe & parts manufacturing industry employs approximately 605,800 people
Industry Trends
The plastic pipe & parts manufacturing industry is highly fragmented and has low levels of market share concentration, with the top three industry operators comprising approximately 22% of industry revenue in 2019. The largest players have numerous locations across the US, while small players are typically independently owned and operated in 1-2 states. Some key external factors that influence this industry are (i) industry regulations, (ii) demand from construction, and (iii) economic environment. Each of these is described in further detail below.
Regulations on the industry have impacted this industry due to environmental concerns. Rules on reducing environmental degradation and improving safety standards have escalated. In response, there has been an adoption of sustainable measures which has affected the manufacturing processes and product designs. Environmental sustainability is one of the dynamic factors the industry keeps encountering, particularly when it comes to materials and manufacturing. Implementation of measures to comply with the measures will show a willingness to support environmental protection.
Construction techniques and infrastructure changes have increased demand. Plastic pipes are essential for drainage and water management in sustainable construction and infrastructure improvement. In the past year there was a 7% rise in infrastructure construction including new homes and buildings. Plastic pipes have become a popular alternative to concrete due to their cost and ease of installation. It is essential to have a product line that includes stormwater management and water distribution services.
Changes in the economic environment, such as raw material costs and disruption of supply chains affect this industry. Adjustments in the costs of the inputs, such as resin, have implications on the cost of production and product pricing. This industry is sensitive to movements in raw material costs, hence the 12% rise in the global supply chain in 2023. To overcome these challenges implementing an efficient supply chain design and developing good supplier relationships is necessary. This insulates companies from continuously rising prices that will increase the overall prices they charge their consumers.
The plastic pipe & parts manufacturing industry in the U.S. is influenced by legal, external market, and economic forces. Due to these challenges companies in this industry have had to innovate. These innovations are due to an adhering to regulations and economic sensitivity but also position themselves well in a high demand environment.
Key Performance Metrics
In evaluating the plastic pipe & parts manufacturing industry, the following metrics can provide useful information in comparing a subject company to guideline companies and transactions.
- Client satisfaction
- Cycle time
- Defect rate
- On-time delivery rate
- Scrap rate
- Yield rate
Industry Organizations & Publications
The following organizations publish useful information:
- Plastic Pipe and Fittings Association (PPFA)
- Plastics Pipe Institute (PPI)
- Plastics News
- Plastics Technology
Guideline Information: Private Purchase Transactions
Most plastic pipe & parts manufacturing companies are privately owned. While there are publicly traded companies, data regarding the sale of 100% of closely held plastic pipe & parts manufacturing companies is generally the best source of information to appraise a subject company.
The following are typical appraisal multiples from sale of plastic pipe & parts manufacturing companies:
- Revenue multiples between 0.3 and 1.2 times
- Gross Profit multiples between 0.8 and 4.9 times
- EBITDA multiples between 4.7 and 16.7 times
In selecting guideline transactions, it is of critical importance to select transactions that are similar to the subject company. Unique factors for any subject company must be considered to yield credible results. Additionally, industry economic conditions also vary over time, which must also be considered.
Guideline Information: Publicly Traded Companies
Most plastic pipe & parts manufacturing companies are privately owned; however, there are a few that are publicly traded, meaning it is possible to compare a subject company based on industry metrics and appraise using industry multiples. However, as with the guideline transactions described above, it is of critical importance to select publicly traded companies that are similar to the subject company. Also be aware that multiples of certain publicly traded companies may not accurately reflect a subject company.
The four largest publicly traded U.S plastic pipe & parts manufacturing companies ranked by market capitalization are:
- Carlisle Companies Inc. (CSL) – $18.6 billion market capitalization
- Westlake Corporation (WLK) – $17.8 billion market capitalization
- Advanced Drainage Systems Inc. (WMS) – $11.2 billion market capitalization
- Otter Tail Corporation (OTTR) – $3.4 billion market capitalization
The Price-to-Earnings (P/E) ratios of these four companies range between 10.9 times and 22.8 times.
Appraisal Rules of Thumb
Please note you should never use a Rule of Thumb in place of a professional appraisal. You will never see a competent professional appraiser do their work using a Rule of Thumb. The professional standards that govern professional appraisal practice, which all professional appraisers should follow, specifically prohibit the use of Rules of Thumb.
Plastic pipe & parts manufacturing companies are businesses sold based on sound economics. These economic considerations can be measured using the key performance indicators described above, but such economics cannot be accurately summarized in these simple formulae.