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Clondalkin Group has come a long way since its formation in 1936 as a specialist paper manufacturing operation in Dublin. Now boasting sales of more than £600m (€870m), generated from activities in specialist and flexible packaging, the group’s growth in the past decade mirrors that of the tiger economy of its country of origin.

However, a couple of hours in the company of group finance director Colman O’Neill and Chris Hill, sales and marketing director of Clondalkin’s specialist packaging division, leave you in no doubt that the group is still hungry for more.

With three acquisitions already completed this year (of Canada’s Direct Plastics Group, Dublin-based pharmaceutical labels specialist Kenilworth Products, and US pharmaceutical packaging firm Keller Crescent), it would be difficult to blame the duo if they decided to take it easy for a while.

But throughout our interview, something of a rarity as Clondalkin doesn’t go out of its way to court the press, talk frequently returns to opportunities for investment, growth and acquisitions.

Eastward expansion
Eastern Europe is particularly attractive to the group, which already runs carton, labelling and pharmaceutical operations in Poland.

“We’re presenting plans for expansion to the board soon,” says Hill, prompting a tongue-in-cheek response from O’Neill of “the board is waiting with bated breath”.

The rationale for expansion in this region is quite simple, says O’Neill.

“We moved there on the back of good relationships with companies already manufacturing there, such as Avon. A lot of UK manufacturing is trying to source in Eastern Europe. Other packaging firms have gone to the Far East, but for the time being we are happy with what we see in Eastern Europe.”

However, Russia has proven “a lot more difficult”, says Hill. “We’ve had it on the drawing board, investigated it, and we’ve got contacts there. But it’s a more difficult climate to invest in and to repatriate funds from. We are supplying products into Russia from Poland. There aren’t a lot of world-class packaging manufacturers in Russia and I think they’re hungry for them.”

O’Neill says developed economies, particularly the US and southern European nations, also offer good opportunities for growth. He hints that the group will look to garner more of its turnover from North America, saying the current balance of sales, with 31% generated over the pond and 69% in Europe, “reflects a certain imbalance”.

A study of Clondalkin’s recent history and ownership structure helps to explain why the group is in a position, and possesses an appetite, to expand.

In the late 1990s Clondalkin was a “low-cap company doing well”, says O’Neill, but was “left without a following as a listed company” as Irish investors started to turn their attention overseas in anticipation of entry to the Eurozone.

The group’s management decided at this stage to pursue a buyout, and Candover was among the private equity houses they approached. It just so happened that Candover was already looking at Clondalkin as an acquisition target, and it took the group private in November 1999.

“Just before the Candover buyout, four managers, who were also directors, bought €2m of shares on the open market,” recalls O’Neill. “They were making a statement that management was investing big time.”

As Clondalkin has grown, it has also given the owners of acquired firms a stake in the group, meaning they stand to gain from high performance.

Then, when Candover came to the end of its five-year investment, Clondalkin was sold for £440m in 2004 to Warburg Pincus, one of the top two private equity houses in the world. “We were very pleased to attract that interest,” says O’Neill with a degree of understatement.

O’Neill says Clondalkin has much to gain under the ownership of Warburg Pincus. “Their average investment is five to seven years and they regard themselves as a development house,” he says. “Some [private equity firms] will be unashamedly turning the investment on a profit. Warburg Pincus are also global so are significant in markets such as India. They have the same global ambition that Clondalkin has. With their backing it’s possible for Clondalkin to look for big acquisitions.”

Perfect timing
Clondalkin has also been ahead of the game in securing its latest round of financing. In June the group raised £290m through floating rate note bonds. With debt financing now hard to come by as the crisis in the US sub-prime mortgage market spreads across the globe, Clondalkin’s timing looks even better, and O’Neill says this might make it easier for the group to expand.

“One of the things that might help Clondalkin right now is that we have the capacity to acquire at a time when the debt market is scarce for others,” he says. “The lack of debt might bring a certain realism back in valuations. In recent years there has been no end of pushing prices.”

While Clondalkin has been busy gobbling up other firms, it has also invested heavily in its own operations. It has spent more than £160m in the past three years, including in new laminating and lacquering capacity at Vaassen Flexible Packaging in the Netherlands and in a greenfield plant in Poland.

This has enabled Clondalkin to offer “something unique” in each of the markets it serves, says O’Neill.

He uses Vaassen to illustrate the point. In 1997 the firm installed a machine to lacquer tobacco packaging. The customer specified that it should run at 1,000 metres per minute when the industry standard was only 450. The new specification meant the lacquered materials had to be respecified to work at the higher speed, giving Vaassen a materials handling capability also beyond the industry standard. The new line at Vaassen has added another 60% to capacity.

The expertise of many Clondalkin companies is often the result of years of experience as a specialist standalone supplier. When Clondalkin has bought businesses it has generally recognised the strength of their brands and has let them continue trading under their previous names, for example Harlands of Hull or Pharmagraphics.

However, O’Neill thinks the time is right now to make the Clondalkin brand more prominent. “The Clondalkin name has become very well-known in the financial world and we are of the view that the image and brand should and ought to transfer to the business world as well,” he says.

Brand recognition
This will not lead to the demise of some famous packaging names, though, says Hill. “One of the reasons companies we have acquired have been successful is that they have a reputation on their own name. There could be a downside to absorbing them and them becoming Clondalkin this or that. We are looking at a hybrid so people know these companies do belong to a big group.”

Hill has already tested this by bringing several Clondalkin-owned companies under the group name at the ProSweets exhibition in Cologne this year. “Even sales people from individual companies met each other for the first time,” he recalls.

The group identity also helps to give customers an idea about the scale of the company. “Avon had a change of buyer and I mentioned that she was not working with a small company but with part of a $1bn group,” says Hill. “More and more of our customers have also acquired companies and some will not work with a single company – they want a global supply base.”

Whatever the name, O’Neill says Clondalkin and its operating companies will continue to focus on “high value-added” products, such as pharmaceutical packaging. And it’s a model that seems to be working.

“Our ambition is to double the size of the group within three to five years,” he says. “Every four or five years we do something to move the group along.

“When we were refinancing in June we were offering €400m and we were offered €3bn. There’s a market out there that wants to offer debt against formulas that are working.”

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10 THINGS TO KNOW ABOUT CLONDALKIN
• The group started life in 1936 as a paper company

• Current chief executive Norbert McDermott is only the third person to hold the role, after Henry Lund and Dr Bert Cusack

• Clondalkin made its first UK acquisition, AP Burt, in 1979

• It moved into the US in 1986 with the acquisition of Fortune Plastics

• Its annual turnover will be more than £600m this year

• It generates 69% of sales in Europe and 31% in North America

• It employs 4,700 people in 45 facilities in 10 countries

• Warburg Pincus owns 84% of the group, with 60 managers holding the remaining 16%

• Clondalkin-owned companies include Pharmagraphics, with sites in County Cork, North Carolina, Puerto Rico and Canada; Harlands of Hull; Boxes Group; and Ditone Labels

• Clondalkin is also the name of a suburb of Dublin