Paper Chase

JUST days after announcing the Clondalkin group's biggest ever acquisition, deputy chairman, Mr Henry Lund is already talking about his next move. By the end of the year he expects to have overseen the purchase of another large company in the US or Europe. The group has never been in a stronger position, he says.

With his sights firmly focused on the US and continental European markets, Mr Lund is hungry for another acquisition. The purchase of the Dutch-owned plastic packaging company, Van der Windt, for £58 million is just a taste of things to come for the Clondalkin Group. He readily states that it could do the same size deal again almost immediately, without seeking funds from its shareholders.

The Van der Windt deal is the biggest acquisition in the group's history. Viewed very favourably by the market, the purchase is expected to give a substantial boost to the group's long-term profitability, and give greater returns to its shareholders.

Many analysts, commenting on the deal last week, suggested that for £58 million Clondalkin has even managed to buy cheap. "We are in a strong position to go for opportunities as they arise," says Mr Lund. "The possibilities for the group have never been better," he added.

It's with some satisfaction that Mr Lund can predict a bright future for the company that he says has become a big part of his life.

He was first introduced to Clondalkin in 1978, after one of its board members urged him to become managing director. At that time the group was very weak. Producing paper for the Irish market the company was becoming increasingly uncompetitive. "It was a turnaround situation " he says.

While he has remained relatively low-profile throughout much of his career with the group, his early years at Clondalkin were spent very much in the public eye.

His decision to close down its paper mill subsidiary in 1981 met with fierce opposition. The mills, which employed 450 people in Clondalkin, he says, had "no future".

However, the workers and the then government vehemently disagreed. For more than a year the workers occupied the mills, while two went on hunger strike demanding that the business be saved. The bitter conflict lasted for almost 3 1/2 years, until the government agreed to back the purchase of the mills by the FDI International group.

"The decision was a difficult one to implement, as there were so many job losses. There was also many political influences involved," he says. But he insists the decision was the right one for the group.

"It was a protracted affair. It had grown up under tariff protection so there was a certain inevitability about the demise of the business," he says.

The closure of the mills was the first step in taking the group out of the cyclical paper producing industry and switching its focus to more profitable print and packaging activities. Its strong trading performance since would suggest that strategy was correct.

In 1978, Clondalkin was valued at £5 million on the Irish Stock Exchange. Reporting a 22 per cent rise in pre-tax profits to £18.3 million in 1995, its value today is closer to £200 million.

While acknowledged as the main driving force behind the group, market sources say Clondalkin is no longer seen as a one-man-band. A few years ago, there was a view that Mr Lund was clearly running the company. A series of acquisitions and expansion within the group has, however, brought in a broader style management throughout all of its operations, they say.

Regarded as a tough business man, most market sources say Mr Lund is very focused and is generally seen as someone who gets things done.

"He is particularly good at cash management and has built up a lot of credibility in relation to its acquisition strategy," according to one analyst.

Sticking to the basic skills of business management, Mr Lund says the group's executives are all primarily focused on cash management. "Cash flow pays the wages. Our managers emphasise that," he says.

Its policy on funding and completing new acquisitions is also straightforward, according to Mr Lund. To date all of its major acquisitions have been funded through a combination of cash and taking some debt onto its balance sheet. The debt is then aggressively run down giving shareholders a good return.

The group has tended to shy away from other forms of finance, such as the issue of new shares to raise money, and will continue in that vein, Mr Lund says.

"Clondalkin has not issued shares for the last 10 years. Rights issues are a very expensive form of finance particularly interest rates are low. If you have good cash flow there is no harm in getting into debt and running it down." This strategy, he says, gives more value to shareholders.

With a broadly based acquisitions team now in place, Mr Lund says the group typically looks at one proposal a day, at least on paper. "We always have a few at some stage of negotiation. The more deals we do the more opportunities present themselves."

Mr Lund says Clondalkin has also earned its place on international markets through its acquisitions. "The seller of the Dutch business knew Clondalkin could meet national standards and bed-in the acquisition because of an earlier purchase in that market." This, he says, ensured that the latest development could be completed relatively speedily.

But he insists there are no opportunities for Clondalkin in Ireland. The group made an offer to purchase the industrial holding company Inistech this year, but was outbid by the James Crean group which has subsequently put the company on the market again.

It appears unlikely, however, that Clondalkin will consider another tilt at Inistech. "The Holland acquisition gives a greater boost to earnings per share for less outlay than Inistech," says Mr Lund. Clondalkin, he adds, now has "bigger fish to fry".