Dermot Smurfit had been chasing the deal for some time before his speciality listed packaging group Powerflute finally acquired Corenso, an international cores and cardboard producer, for €81 million from its giant parent company Stora Enso.
Smurfit, the youngest son of paper and packing entrepreneur Jefferson Smurfit, had done bigger deals with his old family business, but this was a satisfying one to get across the line. He had felt the company was a good fit for the business he has chaired for some years but had been unable to buy it until now.
“For Powerflute, it is a big deal. This deal fundamentally doubles our Ebidta (a measure of cashflow) from €20 million to €40 million. It brings us from about €130 million in sales to heading towards €400 million,” he added.
Headquartered in Finland, Corenso has 12 cores plants in Europe, the US and China and three coreboard mills in Finland, France and America.
It employs 900 people, and will take Powerflute’s total employee numbers to 1,100.
“One of our stated objectives in Powerflute is to try to find orphan assets within big companies,” Smurfit said. In every big business, there are smaller more neglected non-core assets which could thrive if given sufficient management focus and capital, he said. “Corenso was one of those assets. For them, it was 2 per cent of the business: for us it is two-thirds of our business in terms of sales. We will be concentrating much more heavily on growing this business.”
Smurfit said he thought Powerflute, which he founded in 2005, could add two new greenfield plants in China, for example, to complement Corenso’s two facilities already there.
China, he said, was like Europe in the 1920s in terms of the types of corrugated boxes it made and, as it modernised, there was a big business opportunity for Powerflute which helps firms make stronger and lighter boxes, as well as other speciality services.
‘Transformational deal’
“This is a transformational deal for us,” Smurfit said. He said it brought “very far flung” relatively small businesses into the Powerflute fold. “It is very diverse. It is a bit like Smurfit, an internationally based business. It brings with it all sorts of different kinds of opportunities,” he said.
Smurfit’s experience, at every level of the Jefferson Smurfit Group, means he can see possibilities everywhere from building new projects in Central Europe, to revamping its facilities in western Europe.
The acquisition of Corenso has been warmly welcomed on the AIM stock-market where Powerflute is listed in the London Stock Exchange. Its share price surged from 36 pence to over 46 pence, before falling back slightly.
While it was a “blood bath” recently for other stocks, Smurfit notes that Powerflute “floated right above it”.
“The market sees this deal as being extremely accretive to the company,” he said.
Smurfit owns 15.6 per cent of Powerflute while his brother, Michael Smurfit, owns 21.7 per cent. "Michael is just like any other shareholder, except that he loves me," Smurfit laughed, as he poured himself another cup of tea in Dublin's Merrion Hotel.
Having completed the deal, Smurfit said his focus now is to bed it in.
“I don’t see us doing anything in 2015 in terms of acquisitions,” he said. Since the financial crisis, he said, investors expected much lower ratios of debt to equity, leaving little room to buy more businesses for the moment.
“If we get our debt down a bit, we get capital out of Corenso and so forth, then our profile might change.”
Smurfit acknowledged Powerflute could look at other options, like a capital raise or a stock swap in order to acquire more assets, but he said the company had no plans currently to do so.
‘Feel-good factor’
Smurfit said he believed the Irish economy was improving, and the pick-up in property prices was leading to a “feel-good factor as it means there is a lot less negative equity, but still a lot of people in negative equity”. He said he believed it was time the banks took this dead debt off people’s shoulders.
“If the banks have genuinely cleaned up their act in terms of their balance sheets, if they have taken the right kind of write- offs . . . To my mind they should just write this debt off. They should write it off and let the people start again,” he said.
Smurfit, who lives in London, said he had bought a “small house” in Ballsbridge, Dublin 4 in the last few years which will someday be his “retirement home”. He said he had no plans to ease back yet and, for the moment, his daughter Sophie lives there while studying business economics and social studies in Trinity College Dublin.
Smurfit said he came to Dublin not only to visit family, but also to do business. He was an investor and chairman, he said, of ML Capital, which provides onshore investment management solutions. “We have over €1 billion of assets under management and we hope to get that above €10 billion in the next few years,” Smurfit said.
The business was based in London, Geneva and Malta, and set up its headquarters in Dublin, after he insisted it shut down its Cyprus arm and relocate here. ML, he said, provided a regulated platform for fund managers from the United States based in Europe as well helping those funds raise new funds in Europe. His other Irish business interest he said was as chairman of Eurolink, the Spanish-owned toll operator of the M4.
In the US, Smurfit said he had a range of private equity interests, with brothers Glenn and Ron Boschetto, who lead Apoco Capital.
“They are good friends of mine after we met some years ago skiing,” Smurfit said. He said the brothers had got him involved in various investments including Classic Aviation, a medical emergency transport business based in the Rocky Mountains.
Other interests include Standard Fiber, the largest importer of bedding material from China to the US, and British luxury bedding products maker Peter Reed which dates back to 1861. “We have done three or four deals together,” Smurfit said.
He also said he previously had interests with the brothers in managing oil and gas sites in the Rocky Mountains, as well as in offshore projects near Aberdeen, which they had sold successfully.
Not every investment with private equity had gone well for him, Smurfit said. He had been chairman of Cosmo Speciality Fibers, a cellulose mill based in Washington State owned by the Gores Group, until about a year ago.
“We bought it, spent a lot of money and it was rolling reasonably well until the Chinese put a duty on the import of what we make,” Smurfit said. As a result he said the company came under big pressure.
“Private equity did something I didn’t like, so I resigned over a year ago in high dudgeon,” Smurfit said. He does not go into greater detail.
Smurfit credited his father, Jefferson Smurfit, for his family’s success.
“My father was an extraordinary man. When I was two or three years of age, he would walk us around the factories. When we got to 17 or 18, you knew this was what you were going to do. There was no question,” Smurfit said. Four brothers working in the business meant it had to expand.
“We had to make it big so we could all live without being in each other’s pockets,” Smurfit laughed. Each of the brothers had different roles, or worked in different geographies.
“Of course, within families, you can say to each other what you couldn’t to another manager,” Smurfit added. “In the old days, sometimes they would hate coming to meetings between me and Michael. I remember Michael saying profits weren’t good enough and me saying: ‘Well if you think that you can do any better you can . . .” Smurfit laughed.
Inside story
In April, Dr Smurfit published the inside story of how the family business was created in a best-selling autobiography called
A Life Worth Living
. Smurfit believes the book shows how his brother had a role in giving Irish business the confidence to expand abroad.
“If you went back to the 1960s, what we exported were our brawn,” Smurfit said. “The Irish were the builders of Britain. Michael was the first person who proved you can actually go out there and export your brains. If you take CRH, the banks, all of whom started going overseas, it was only afterwards . . . Michael led the way.”
Smurfit said there were too many stories about his brother ever to fit in one book. "There is a lovely story told by Michael," he recalled. "We are all on board the Lady Anne McGee, that's his boat. Amongst the guests are Dermot Desmond, JP McManus and John Magnier. They get to the cigar stage and Michael has his cigar and so does John Magnier. Michael is pontificating about how the big Irish families have all split up fighting over money but how the Smurfits for the last 40 odd years have stayed together and never fought over money.
“Magnier is at the other end of the table and he says ‘Michael the reason for that is because you have got it all!’,” Smurfit laughs. He then turns more reflective.
“We have been very fortunate as a family but that all goes back to the original ethos that my father gave us when we were kids,” he said. “When he was 58, he gave away his fortune. He gave his family everything. Can you imagine? Heading towards 58 to give everything you own to your children. He said: ‘If my sons don’t look after me, better I was never born.’ He was an extraordinary individual and that whole family ethos was built into our DNA,” Smurfit said.
Life values
This could be seen, he said, when his son, Dermot jnr, was chief executive of Game Account Network, a gaming software and content business, while Michael’s son, Tony, was near the top of the Smurfit Kappa Group. It was possible some of his other children might join him in the paper and packaging business, but “they need to do what they want to do”.
Smurfit said he owed his father much for instilling in him business and life values. "The only thing you have in your life is your name, always protect your name, which is what we did," Smurfit said. "People wrote scurrilous things, particularly the Irish Indo. They wrote many scurrilous things about the Smurfits over the years. We just let it go. It is tomorrow's fish and chips . . ."
Smurfit sounds as fascinated by the paper and packaging industry today, as he was when he started in the sector in 1961.
“As far as this deal is concerned, we have lots of things to do,” he enthused. “One of the things we were very good at in Jefferson Smurfit was bringing in companies and making them feel part of the new company very quickly,” he said. “We have a philosophy which is you find the best things that that company does and you adopt them in the enlarged group.
“The people within Corsenso are very excited to be part of Powerflute because they felt lost. They were 2 per cent of that company, but they are a very big and important part of our business.”
In the past Dermot Smurfit has referred to himself self-deprecatingly as the “forgotten Smurfit”, relative to his famous older brother and daughter Victoria, the well-known actress.
Last Monday, he was quietly presented by order of the president of Finland with the Knight, First Class of the Order of the Lion of Finland, for services to business. On Tuesday, an extraordinary general meeting of Powerflute saw his shareholders clamour to back the Corenso acquisition.
As he powers ahead, Smurfit may have a lower profile than some, but he is far from forgotten.
