Not many people have heard of Jim Ratcliffe, says Fiona Maharg Bravo on Breakingviews.com. Yet he “is to chemicals what Philip Green is to retail or Lakshmi Mittal is to steel”: a highly successful entrepreneur who has built a multi-billion pound empire “using lashings of debt” in just seven years. Ratcliffe likes to keep a low profile. But as his Ineos Group prepares to complete its $9bn acquisition of BP’s petrochemical and refining arm, “anonymity may no longer be an option” for Britain’s most private billionaire.
A quiet, family man based in Southampton, Ratcliffe, 53, is often described as “secretive”, but within the chemical industry his deal-making prowess is legendary, says Chemical Week. He specialises in buying up assets from old giants such as ICI, BP and Degussa – often hitting when they’re most under pressure.
The deal to acquire Innovene (formally BP Chemicals) from BP was certainly striking for its panache, says The Daily Telegraph. The deal was kept secret even from Innovene’s senior management: a week before Ratcliffe slammed £5bn in cash on the table, they were still preparing to float the company. Ratcliffe, believed to own 67% of the Ineos Group, described the acquisition as “transformational”. He has a point: it will be quadruple the size of Ineos, which now becomes the world’s fourth-largest petrochemical company.
The secret of Ratcliffe’s success is that he is at home in both the chemical industry and the world of private equity. A chemical engineer by training, his career began at Esso before he left to join Courtaulds. But the transforming move came when he joined venture capital firm Advent in 1989.
Three years later, he teamed up with chemist-turned-entrepreneur John Hollowood to lead a buyout of Inspec Group from BP for £40m. Within 18 months, the group floated and by 1998 – when the bulk of its operations were sold to Laporte – its value had grown 15-fold. That year the two co-founders parted, says Corporate Money. Ratcliffe – backed by private-equity firm Aberdeen Murray Johnstone – led a management buyout of part of Inspec’s chemicals divisions to create Ineos Group and embarked on an “acquisition binge”. Its astonishing rise surprised even its management. “To be truthful, I’m surprised how quickly it has all happened,” said Ratcliffe, in a rare 2001 interview.
Hugging the shadows
In many ways, it’s unsurprising that Ratcliffe loves to hug the shadows, says The Independent: his one foray into the public arena was controversial, to say the least. Having acquired ICI’s Runcorn chlorine plant in 2000, “after one of the longest due diligence exercises in recent history”, Ineos decided it had been “sold a pup” and began petitioning the taxpayer to bail it out. Ratcliffe went for broke, asking the Government for £300m: the alternative, he said, was the closure of the plant with the loss of some 133,000 associated jobs.
The press consensus was that “Ratcliffe of Runcorn should be sent packing”, but he managed to extract £50m. Governments are not the only agencies prepared to back Ineos, says the Daily Mail. “It seems to have had no difficulty persuading Barclays Capital, Merrill Lynch and Morgan Stanley to underwrite its £5bn cash offer [for BP].” It used to be said that chemicals giant ICI was the bellwether of the UK stockmarket. Perhaps Ratcliffe has taken up a similar role as a bellwether of the private-equity boom.
His master move: turning Ineos into a bargaining chip
Ratcliffe has grown Ineos rapidly by making ever-bigger acquisitions funded mostly with debt, says Breakingviews.com. “How come, one might ask? Surely even in today’s markets where liquidity is sloshing around, one needs to fund at least 20% of a deal with equity?” Ratcliffe gets round that requirement by using Ineos as the equity – focusing single-mindedly on growing cash flow to increase the company’s debt capacity. “That way, Ineos is ready to be used as collateral for the next deal”, ensuring that “every few years, he can triple or quadruple in size”.
Ineos’s policy of buying businesses regardless of whether they have synergies with existing operations resembles that of a private-equity capital firm, says Chemical Week. But the majority of its board members have at least ten years of experience in the chemical industry. This hybrid positioning works in its favour: Ineos has purchased most of its assets in auctions, frequently competing against private-equity capital companies.
“Chemical companies are more comfortable dealing with us than with accountants from the private-equity capital sector,” says Ratcliffe. Nonetheless, “Ineos has some of the philosophies and healthy disciplines of private-equity capital”. The company has developed strict criteria for acquisition targets. Ultimately, it all comes down to a target’s ability to enhance the group’s value, measured by earnings before interest, taxes, depreciation and amortisation (EBITDA). Ineos’s entire modus operandi assumes that it can double the average EBITDA of a cyclical business over a five-year period.