No fairytale ending in this rags to riches business story

 

CREATING AN EMPIRE:It all started with a £100 loan used to sink a well, extract gravel and sell it on at a profit

SEÁN QUINN’S rags-to-riches story was, at least until last year, a charming one. It started almost 40 years ago with a young man who had the the most basic of business ideas and a £100 loan to get things off the ground.

That young man became Ireland’s richest, with a fortune of $4.5 billion, a company employing thousands and an impressive international footprint.

Or at least that was how it was meant to end, until the house that Quinn built came tumbling down around his head 12 months ago.

On March 30th last year, the steely Fermanagh entrepreneur found he was no longer able to shadow box his way to greater business success when the Financial Regulator wrested Quinn Insurance from his control over a serious solvency problem.

At the time, Quinn Insurance was a totemic business for the group as a whole, in part because it symbolised how far a single entrepreneur had come and in part because it was seen as key, either through cashflow or sale proceeds, to the repayment of a €2.8 billion debt to Anglo Irish Bank. This debt, in turn, is key to Quinn’s unravelling – a massive bet on shares in the now-failed bank had been ill-judged in the extreme and has ultimately led to his removal from the group he founded and built. A look at the Quinn Group website shows how much has been lost. The company spans 13 segments, including building products, glass, hotels, plastics and, albeit not for much longer, insurance. It has 8,000 employees spread across Europe, many of whom are based in a belt straddling the Fermanagh/Cavan Border, an area not otherwise known for large-scale industry or employment.

It was here that it all started for Quinn, the £100 loan in 1973 used to sink a well, extract gravel, wash it and sell it on the local contractors at a profit. A gravel business was born. It grew on a small scale at first but a game-changing milestone came in 1989 when the closed shop of cement production blipped on Quinn’s radar. He simultaneously took on the powerful incumbents of CRH and Blue Circle to win an all-Ireland position.

An equally big moment came with the launch in 1996 of Quinn Insurance, another example of taking on the establishment, although one that has proven to have been less fortunate for Quinn and his family.

The next closed shop to attract his attention was container glass, with the commissioning of a first plant in 1998. In 2003, Quinn took a share in Dublin stockbroker NCB, bringing him closer to the business establishment.

Still maintaining a low profile, little was known about the personality behind Quinn Group at this stage, aside from his appetite to take on a risky fight with poor odds.

He was beginning to open up, however, releasing piecemeal details about the value of his business empire. By 2004, the company’s turnover, now drawn from more than five different business areas, topped €1 billion, while pretax profits climbed to €200 million from €160 million just one year previously.

That a company on this scale was not considering flotation, particularly as the economy boomed, was surprising. Instead, Quinn chose a two-track strategy of continuing to build the group he had founded while working, separately, to provide an inheritance for each of his five children through property and hotel investments.

In hindsight, the middle of the last decade was probably Quinn’s peak. His fortune was expanding, his business was diversifying, his family were becoming involved in the company. Forbes named him Ireland’s richest man at about the time he boldly entered the health insurance market with the acquisition of Bupa Ireland, another move into a regulated market.

And then along came Anglo Irish Bank and the game changed. In the run-up to the summer of 2008, just as the economy was seriously losing steam, Quinn and his family (again with an eye on their legacy) were building up a stake of at least 28.5 per cent in the bank. This was done in secret by way of contracts for difference (CFDs), structures that do not require an investor to pay in full for their stock up-front.

CFDs can be dangerous, however, particularly when the value of a stock falls below a designated level. This can, and did in Quinn’s case, lead to stockbrokers looking for additional funds from the investor. A cash crunch suddenly loomed for the businessman and he was forced to convert almost 15 per cent of his holding into conventional stock, helped by loans from Anglo. Another 10 per cent was controversially sold to 10 long-standing Anglo clients as the bank strove to avoid a collapse in its value. Quinn has long denied any personal impropriety in this arrangement.

The bank’s efforts turned out to be fruitless. Anglo ended up being nationalised at the start of 2009 and was left nursing a Quinn family debt of almost €3 billion. The clear problems attached to this took on an additional resonance when Quinn Insurance, a cash cow for the group, entered administration a year ago. The prospects of the Anglo debt ever being paid off have become more remote as the months passed, particularly as recession has choked the economy.

All the while, Quinn repeatedly stated his belief he had always repaid his debts and would continue to do so. As recently as June last year, he said Anglo would get its cash within seven years if the Quinn family was allowed to keep control of its insurance business. In fact, his sway over and ownership of the group was seeping away along with the bank’s chances of recouping its cash.

The repayment dream, unlike so many others imagined by the 63-year-old entrepreneur, now has no chance of being borne out in reality.