During the past three years, Jim Ratcliffe and his Ineos Group have been on a phenomenal spending spree that has rocketed them into the top flight of global polymer producers.
Ineos has leapt over companies such as DuPont Co. and Bayer AG to become the world's third-largest chemicals producer. It now is snapping at the heels of BASF AG and Dow Chemical Co., in first and second place, respectively.
Two things set Ineos apart from the illustrious company that it keeps. First, the firm is less than 10 years old, having been founded in 1998. Second, Ineos is entirely privately owned.
Ratcliffe, the company's 54-year-old founder, chairman and chief executive officer, is believed to own around two thirds of the group. That gives him a uniquely powerful position in the industry and an estimated personal worth of more than £3.2 billion ($6.56 billion). He is placed at No. 10 in the London Sunday Times Rich List ranking of the wealthiest people in the United Kingdom and Ireland.
This chart position puts him ahead of household names such as Richard Branson and Paul McCartney, who are rarely out of the headlines. By contrast, Ratcliffe is variously described as ``publicity-shy,'' ``low-profile,'' ``secretive,'' ``Britain's most private billionaire'' and someone who ``loves to hug the shadows.''
However, he recently emerged from those shadows to give a lecture at the chemical engineering department of Birmingham University, where he graduated in 1974. Far from secretive, Ratcliffe turned out to be affable and approachable, openly discussing the strategy behind the rise of Ineos with past and future graduates.
He admits he and other senior managers at Ineos headquarters in Lyndhurst, England, are ``not in the habit of giving lectures,'' simply because they are focused on the job at hand and do not like to get distracted.
That focus has resulted in a string of major acquisitions in the plastics sector during the past three years. They have included: the PVC businesses of EVC International NV and Norsk Hydro ASA; the Lustran ABS business of Lanxess AG; the polyolefins plants of Innovene LLC and the Norwegian ones of Borealis A/S; and the U.S. polystyrene activities of BASF Corp.
``When a new chief executive is appointed at a chemical company, they implement their new strategy and buy and sell businesses accordingly,'' said Ratcliffe, before admitting, ``We buy the unfashionable parts.''
With leadership of Europe's PVC market and a major presence in the PS market through its joint venture in Jolliet, Ill., with Nova Chemicals Corp., Ineos certainly has a taste for taking on the more mature areas of the plastics sector that others fail to find attractive.
However, the acquisition that really grabbed headlines and propelled the company into the big leagues was its audacious raid on the Innovene polyolefins business, which it purchased from BP plc for $9 billion in October 2005.
The business was being prepared for an initial public offering when Ratcliffe jumped the gun with a cash bid.
``We persuaded them that they would be better selling to us,'' he said. ``The bid was put together in just eight to 10 weeks with no site visits and no meetings with BP management.'' It has also been reported that no banking advisers were involved in the mammoth offer.
In just nine years, Ineos has grown from nothing to annual sales Ratcliffe predicts will top $44.5 billion in 2007. ``We must be the fastest-growing company the U.K. has ever seen,'' he claimed, and it would be hard to argue otherwise.
The company now has 69 sites in 17 countries with 15,000 employees. The management team in Lyndhurst numbers only 17. Each of the company's 17 divisions is run by a focused team that, in Ratcliffe's words, ``has to stand on its own feet.''
Discussing the funding for his string of acquisitions, Ratcliffe talked about why he prefers debt rather than equity.
``Debt is quite cheap, while equity from venture capitalists is very expensive,'' he said. ``There is also a control issue. Banks don't want to interfere, while equity people want to advise, and we don't like that.''
However, the repayments on conventional bank debt can exceed the profit from a chemicals plant. Ratcliffe illustrated the point with figures for the former Innovene business, where repayments of the amortization and interest for a conventional loan for the full purchase price would be around 40 percent higher than cash profit from the business.
The answer to that problem has been the high-yield bond. ``It has enabled us to finance big deals. It's not public equity; it's public debt,'' Ratcliffe said.
A high-yield bond is a public issue and is tradable. The big difference for Ineos is that repayments are interest-only, with a bullet repayment after 10 years. Without the regular capital repayments on top of the interest, debt-funded acquisitions can be much more viable.
Once Ineos has acquired a new business, the focus is on increasing its profitability. ``The way to make money in chemicals is to double the [EBITDA],'' said Ratcliffe, referring to the earnings before interest, taxes, depreciation and amortization.
He targets cost reduction in areas such as ``travel, [information technology], office supplies and consultants,'' but it is clear that plant output and efficiency are key priorities for the Ineos team.
Ratcliffe constantly refers to his chemical plants as machines. ``Chemical plants are very expensive, very big machines,'' he said. ``If they are not running to capacity, then you cannot cover costs.''
His plea to the future chemical engineers in his audience was: ``Love your machines. Build machines that run all day and keep them well-maintained. If you let plants deteriorate, you will end up with a life of trouble and put people out of work.'' He cited ExxonMobil Chemical Co. and BASF as leading the way with the quality of their production facilities.
To Ratcliffe, acquiring a major chemicals plant is like buying an old car. ``Purchasing a German plant is like buying a second-hand Mercedes that has been really cherished by its owner,'' he said, also pointing out that Belgian plants are in a similar league.
He is less complimentary about chemical sites in other parts of Europe.
``Buying a plant in the U.K. can be like buying a second-hand Rover, while an Italian one can be like a second-hand Fiat and a French one can be quirky like an old Renault.'' The clear inference is not all plants are as well-built and well-maintained or as efficient as the 50-year-old phenol plant Ineos acquired in Gladback, Germany, and Ratcliffe enthuses over.
By comparison, the former Innovene plant in Grangemouth, Scotland, leaves something to be desired.
``If Grangemouth was in better condition it would make a shed load of money,'' he complained, using photographs of the plant to illustrate his points about poor plant design and maintenance, as well as showing the work that has been carried out to put things right.
Asked about his company's plans for the future, Ratcliffe said: ``We think about taking time out to consolidate, but then a new opportunity comes along. Having said that, we turn down 10 offers for every one that we buy.''
He also added that the company's growing market dominance is making acquisitions more difficult as the competition's authorities sit up and take notice. The current European Union investigation into the PVC implications of the Hydro takeover is ``frustrating.''
Ratcliffe also made reference to the current situation in financial markets and the resulting credit squeeze. In addition, he said now is not a good time for acquisitions, as the industry is at or near the top of the cycle. However, he claimed that his company ``could still raise another $5 billion'' if the right opportunity came along.
Ratcliffe's talk at the university Oct. 9 was part of the Innes Lecture Series sponsored by Bill Innes, who also graduated from the chemical engineering department and went on to head ExxonMobil's research and engineering activities. It was attended by past and present students and staff from the department, including Beevers, publishing director of European Plastics News and Plastics & Rubber Weekly, who graduated from the department in 1984.
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The rise of Ratcliffe
After graduating from Birmingham University in 1974, Ratcliffe worked for Esso and Courtaulds plc. In addition to his chemical engineering degree, he also went on to obtain an MBA and accounting qualifications.
In 1989 he made a career-defining move by joining Advent International Corp., a U.S. private equity firm, as a director focusing on investments in the chemicals sector.
Three years later he and another entrepreneur, John Hollowood, saw an opportunity for themselves with the $70.7 million buyout of Inspec Group plc from BP plc. ``I put all my worldly goods into Inspec'' Ratcliffe said.
The company was floated on the London Stock Exchange in 1994 for $208 million and by 1998 its value had rocketed, with Laporte plc buying up the majority of its operations for $1 billion.
That same year, Ratcliffe formed Ineos to acquire Inspec's petrochemicals division. Since then, the spending spree has gathered pace with real bursts of activity in 2001, 2005 and 2007.
While some observers have compared Ineos to a private-equity capital firm, it is clear that Ratcliffe and his team use their chemicals industry experience to the fullest to give themselves a real competitive edge against the money men.