Morgan Stanley Capital’s Comar looks to fill gap in healthcare packaging

Morgan Stanley Capital Partners-backed Comar is looking to fill a void in healthcare packaging, as it builds out a platform centered around technically complex capabilities and product components.

Comar, following its recent acquisition of iMark Molding, surpassed $200 million in revenue, up from around $150 million about 18 months ago, when the platform was acquired by MSCP, a source familiar with the company told PE Hub.

MSCP, with one acquisition under its belt, aims to grow Comar’s top line to up to around $500 million or even more, the source said.

The Voorhees, New Jersey-headquartered company on Jan. 27 bought iMark Molding, a contract manufacturer focused on the medical device industry. More specifically, iMark brings Comar scientific injection molding capabilities, which can be extended and transferred throughout the business.

Eric Kanter, a managing director of MSCP, declined to comment on financials, but spoke to the attractiveness and opportunity ahead in healthcare packaging. “Packaging is a really safe and defensive, stable sector, and the medical side has even more recession resilience,” Kanter said.

Fueled by an aging population, the consumerization of healthcare and increased outsourcing by pharma and medtech companies, the healthcare plastics and packaging industry is more than $5 billion in size and growing at about 2x GDP, the investment professional told PE Hub.

Kanter said there are high barriers to entry due to infrastructure requirements, technical know-how and significant cost of failure, as packaging is oftentimes specified into the end product. There are also high shipping costs associated with offshoring, which, he said, “create the ability for domestic US packaging platforms of scale to be built and outperform in the long run.”

Healthcare-centric packaging providers tend to see attractive margins and very high switching costs vs. other packaging businesses, Kanter added. While valuation multiples reflect this, a fragmented market also lends to significant running room for Comar and its healthcare packaging peers, he said.

Consolidation opportunity

The healthcare packaging market isn’t yet deep in terms of large, independent platforms, leaving tremendous room for consolidation.

That said, Comar has a high bar for acquisitions and will remain selective, Kanter told PE Hub. “We want to do more M&A,” Kanter said. “We probably will do more M&A. But we’re not just going to do [any] M&A.”

MSCP and Comar are “keenly interested” in acquisitions that will add capabilities in the following areas: scientific molding, micromolding, silicon and sharps, Kanter said. “These are great examples of ways that we can better serve our customers’ most complex needs,” he said.

“It may be that on the face of it, [a particular asset] is not a real attractive valuation, but we know it’s a capability we need. For example, we would prioritize something like silicon,” Kanter said.

MSCP’s big vision for Comar? Move upmarket in healthcare, Kanter said, as opposed to focusing on more commoditized healthcare packaging.

Consistent with its purchase of iMark, MSCP and Comar plan to cherry-pick assets, looking to add highly technical capabilities in both packaging and components that go into medical products: “We target projects that are super-complicated engineering-wise,” Kanter said.

Comar, which will focus on assets that have a geographic presence in the US and Europe, will generally target acquisitions generating EBITDA of $5 million and above, Kanter said. There’s no hard and fast rule around how large of an acquisition it will do, but on the high end, “north of $100 million EBITDA would be tough,” he commented.

Premium values

Broadly, prized assets in healthcare packaging have commanded mid-teens multiples of EBITDA in recent activity – at a premium to packaging assets focused in other end-markets, sources have said.

For example, when Kohlberg & Co last year prevailed in the sales process for Mason Wells’ Nelipak Healthcare Packaging, the deal commanded an approximately $590 million valuation, implying an EBITDA multiple of around 15x, two people familiar with the matter told PE Hub at the time.

Kohlberg’s subsequent acquisition of Bemis Healthcare Packaging was valued at a similar multiple, one source noted.

While assets of scale are proving to have some scarcity value, the reality is that deals of all sizes remain highly competitive. The notion that you can build a platform in healthcare packaging by rolling up assets and buying down the entry multiple – a strategy oftentimes pursued for multi-site healthcare assets – is a faulty one.

Prices for smaller assets in healthcare packaging have also creeped up, with businesses as small as $2 million to $3 million in EBITDA trading at multiples just below 10x, the source said.

Packaging roots

Kanter, who helps lead the industrials practice at MSCP, told PE Hub that the firm identified packaging as an attractive sector within the industrials landscape as early as 2013, ultimately narrowing that focus to healthcare as an end market.

After MSCP last year closed its initial investment in Comar – a company Kantor said the firm had “admired from a distance for many years” – the firm refined its strategy to target the medical device, point-of-care diagnostics and drug delivery product categories, he said.

That helped lead to Comar’s January acquisition of iMark, which Kanter said has become its flagship medical facility.

Comar isn’t MSCP’s first move into healthcare packaging. The company has separately been scaling up PPC Flexible Packaging, a maker of custom flexible packaging for the specialty food and healthcare markets.

PPC, which has made a series of acquisitions following MSCP’s 2017 investment, generates north of $200 million in revenue today, the source said.

In other segments of the healthcare market, MSCP also owns Pathway Vet Alliance. PE Hub reported in September that Harris Williams, Morgan Stanley Investment Banking and Jefferies had been retained to advise on a dual-track sale and IPO process for the veterinary care company.

In a sale scenario, MSCP would likely seek a valuation in the high $2 billion-range to upward of $3 billion, sources said at the time.

Action Item: Check out MSCP’s latest Form ADV.