Paper tiger who never forgot his father’s words of wisdom

Every serious investor has a story about the one that got away. Dermot Smurfit, chairman of the paper company Powerflute and the younger brother of the K Club owner Michael Smurfit, is remarkably phlegmatic about his one, considering how much it cost him.

He was in Dublin recently talking up the prospects of Powerflute, the Aim-listed Finnish paper company he chairs and which is on the acquisitions trail. Over lunch in the Shelbourne Hotel, he also tells me about his biggest financial miss. Let’s call it the €64 million question, because that’s how much he would have made.

At the fag end of the first dotcom boom, Smurfit's son, Dermot Smurfit Jr, was working in mergers and acquisitions for Soundview Technology. He brought a potential investment to his father: a new UK gambling company was offering 5 per cent of its equity for £250,000. It was called Betfair.

“I did some due diligence. I called a friend, who shall remain nameless, whom I knew understood this market very well. I asked him what he thought,” says Smurfit. “He said it would be out of business in months, so I didn’t do the deal.”

Betfair is now the world’s largest betting exchange, listed on the London Stock Exchange with a value just short of £1.1 billion. If he had held on to the 5 per cent, Smurfit’s stake-that-never-was would now be worth more than £53 million, or €64 million.

Does his son, who now runs the online gaming company GameAccountNetwork, ever tease him about it? “Of course he does: ‘Do you remember that Betfair deal, Dad . . . ’, he sometimes says. To give him credit, his investment nose was such that he knew this was a good investment.”

And the “friend” who steered him off it? “Ha, ha! Yes, he is still my friend.”

Navigating the eddies and currents of corporate life comes naturally to a Smurfit, the country’s best-known business dynasty. Smurfit perfectly fits the bill as a scion of a famous family. Charming and opinionated, he looks and sounds like a man used to the finer things in life.

He left the family's eponymous paper company, Jefferson Smurfit (named after his father, who initially built it), when it was taken private by Madison Dearborn in 2002 in a $3.5 billion deal.

Smurfit was deputy chairman to his brother Michael by the time he departed, but was keen to strike out on his own. At 58 years of age, he had capital, a desire to build a new business, and the family name to help open doors.

“One of the things my father said to me, many years ago, is that the most important thing you have in your life is your name. So, never do anything to sully it. That’s how all of us – the Smurfit brothers – have lived our lives.”

The family name, while it opens doors, can also be a hindrance, he says.

“There are always those who said, ‘He must be useless if he’s still working in the family company’. Accusations of nepotism, that sort of thing. It’s all completely unfair. If you were a member of the family working in Smurfit, you had to be twice as good as the rest just to get along.”

Instead of starting all over again, shouldn’t he have out his feet up instead? It’s not like he needed the money, although Smurfit begs to differ.

“I have a second wife, Geraldine, and we had five children. I also have two children [Dermot Junior and the actress Victoria Smurfit] from my first marriage. I’m essentially quite mean – I hate spending capital and much prefer spending income. So I decided I needed to start again.”

Consortium
He took up a number of directorships, but it was late 2004 before he found the deal he was looking for. While on a shooting trip with Finnish businessman Jouko Jaakola, he was offered an old paper mill in the Scandinavian country called Savon Sellu.

Smurfit put together a consortium of investors, including his brother Michael, and helped to transform the mill before floating the company on the London Stock Exchange as Powerflute.

Using birch from nearby forests, it is one of just three producers globally of fluting – the squiggly, heavy duty corrugated cardboard often found in boxes used to transport fruit and vegetables.

“It’s a tiny niche. We can defend our position in the market much more than producers of the more commoditised forms of paper. Our uniqueness is how strong and water resistant our product is.

“If you’re transporting pineapples from Panama, you need a box that has to be able to withstand a lot of punishment, but will still look good when it reaches a supermarket.”

The company floated with a valuation of about £100 million, but all paper companies got hammered during the bust. Powerflute has made back some of the lost ground, and is now valued at about £73 million.

In late summer, it announced stellar interim results, with sales up 15 per cent and profits more than doubling. Smurfit says Powerflute is now on the lookout for acquisitions. “My father used to tell me opportunities came to pass, not to pause. So it’s the right time, if it’s the right deal.”

He says the company would consider buying into a waste paper operation.

“The issue is finding the right one. We could do a £100 million deal today, without raising money from shareholders. We’re looking at an operation right now, but there is no timeline.”

Powerflute, he says, is a growth company whose management have run other operations that were much larger. “We have the management scale to do something much bigger.”

Analysts recently pointed out that Powerflute usually trades in the same narrow price range, but after its good results, that this could be the year that it breaks free. Will it?

“I’m determined that it should be,” laughs Smurfit, finishing off the last of his plaice. “The chairman of every company believes his is undervalued. But our peers trade at six times earnings, while we trade at four times earnings. If only I knew the reason why, it wouldn’t exist.”

Smurfit, who is based in London, also runs his own business consultancy. He recently took a 15 per cent stake in a financial trading firm he was advising, ML Capital, which he says is planning to relocate to Dublin. He has also taken over as chairman.

“I insisted the operation move to Ireland before I would invest,” he says.

He also chairs Timber Capital, a forestry fund manager, and is an adviser to another company called Prime Energy Power. It is also looking for acquisitions – in the energy space – in Ireland.

“ I would be happy to take on a few more roles. Not just directorships – I prefer to be chairman. You don’t have all that much power, but you get to decide when and where the meetings are held. Then at least you can balance your diary from your own personal standpoint,” he said, smiling at his own chutzpah.

Although he hasn’t lived full-time in Ireland for decades, he is furious about the economic disaster that has befallen the country. He advocates a debt forgiveness programme to boost the economy, as long as Ireland can get back some of its bank money from Europe.

“The bailout was really a bailout of French and German bondholders. Now, they need to pony up some serious payback money, so the banks can write off debts for Irish people.”

He feels sorry, he says, for the “poor sods” labouring under mortgages they will never be able to repay

“They’ll end up hiding their income. We should write the lot off and start again. If it means a few scroungers get away with it, that’s the price to be paid to rebalance things.”

He plans to remain chairman of Powerflute as long as his brain allows him. “You find as you get older, your attention span for detail starts going down. These aren’t issues of age, but issues of competency. I’ll stay in business as long as I’m competent enough.”

And with that, Smurfit is off through the doors of the Shelbourne and strolling along St Stephen’s Green to another business meeting.

Another day, another deal, probably. Although these days, he is probably more mindful when it comes to getting business advice from his friends.

CV Dermot Smurfit
Name: Dermot Smurfit
Age: 68
Job: Chairman of Powerflute, a growing Finnish paper company. Also chairs ML Capital and Timber Capital, and is an adviser to Prime Energy Power.
Family: Married to Geraldine with five children. Two other children from his first marriage.
Something you might expect: He had to work his way up from the shopfloor of Jefferson Smurfit, the family business. He started off earning £2.50 a week as a sample cutter, armed with a Stanley knife. "I still have the scars to prove it."

Something that might surprise: He's a freeman of London.