Ardagh

Leadership is always the catalyst of great success.

Over the past fifteen years Ardagh, the Irish glass bottle maker, has gone from relative obscurity, with operations in just Ireland and the UK, to being on the verge of becoming the second largest glass bottle maker in the world and the largest in the US. That will happen if its latest deal, to acquire Verallia North American for $1.7bn from Compagnie de Saint-Gobain, clears regulatory approval.  Ardagh had annualised sales of €4.1bn to the end of September 2012 and that will grow to €5.3bn if this deal goes ahead. Ardagh’s annualised earnings, to September 2012, were €682m.

Not only has Ardagh “rolled-up” a number of glass bottle manufacturing businesses in recent years, but it has diversified into metal packaging too, with the acquisition of Impress Group in 2011, so that sales are now evenly split between its glass and metal divisions.  Under the leadership of Paul “The Cooler” Coulson, it has grown steadily by acquisition on the back of his ability to raise something like $5bn in debt during these tough times. Ardagh has made 11 acquisitions over the past four years, with three “biggies”, if you include this one, which have transformed the business. It is also now talking of a US IPO in 2013.

So, how did this happen?

  • Leadership: Paul Coulson is clearly a pretty impressive businessman and leader. He has been described as “hugely tenacious with great foresight”.  He not only raised the debt, but he delivered each time, so that he has been able to repeat the trick.
  • Deal Competence: Either Mr Coulson, or his advisors, appear to have real expertise and competence in acquisitions, although on the basis of others’ recent experience (Rio Tinto, Caterpillar, and even expert-acquirer Pearson, being chastening examples of where acquisitions can so easily go wrong, particularly for those in a hurry to diversify) we may need to wait a few years before that is really confirmed.
  • Demand: The demand for glass bottles and tin cans, for the food and drink sectors, is pretty steady and predictable, so overall sector demand risk is low.
  • Scale & Scope: The biggest demand comes from suppliers who operate internationally, so there is likely to be scope benefits in developing a matching supplier “footprint”. Because of the geographical distribution of key accounts there are probably scale benefits of being biggest too. Many of the key clients use both glass and metal packaging and there are probably scale and scope benefits of providing both.
  • Timing: Life has not been great for the glass sector in this period so there was a window of opportunity to acquire unwanted assets and to consolidate subscale businesses. It applied financial leverage at the right time.

Here we had: a sector ripe for consolidation; where demand was stable; and there were underexploited benefits of both scale and scope. Fifteen years ago along comes a man with the vision and the skill, to not only get people to follow him, but also to lend him the money to do something about it. Not many people can do that. Leadership is always the catalyst for such impressive undertakings.

Mark

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