Tuesday 21 November 2017

One51 puts colourful past behind it as Toronto listing beckons

Now positioned as a pure plastics play, One51 has ambitions to become a sizeable listed entity across the Atlantic, writes Samantha McCaughren

Alan Walsh took over from Philip Lynch as ceo of One51 in 2011 and set his sights on paring back the company assets and refocusing on plastics
Alan Walsh took over from Philip Lynch as ceo of One51 in 2011 and set his sights on paring back the company assets and refocusing on plastics

Had everything gone to plan at One51 last year, the plastics company would now be a listed company, trading on AIM in London and the ESM in Ireland. Both exchanges are designed for smaller companies looking to access capital on the stock markets. Last year the Dublin company would have been expected to list with a market capitalisation of a couple of hundred million euro.

However, the IPO plans were scuppered when they did not win enough shareholder support.

Among the main objectors to the plan was billionaire financier Dermot Desmond, who owned a 23pc stake, and some like-minded shareholders. Chairman Denis Cregan said later that only 65pc of the shareholders had backed the listing plan.

Just over a year since the IPO plans were formally pulled, One51 is in a very different place.

Former shareholder Dermot Desmond
Former shareholder Dermot Desmond

The company's ambitions have grown significantly and it now aims to list in Canada, with a powerful Canadian backer (pension fund CDPQ) and a much better story to tell would-be investors - as well as long-suffering shareholders, who have been promised an exit opportunity for many years.

A year ago, its business was very much focused on the UK and Ireland. Now, 70pc of its revenues come from North America.

Earnings have grown significantly, due to organic growth and a number of bolt-ons, including the US$150m (€134m) acquisition of Macro earlier this month, a leading Californian rigid plastics manufacturer.

One51 has been a magnet for attracting prominent Irish business figures, public controversy and some of the most colourful corporate twists and turns in recent Irish business history.

Under the leadership of chief executive officer Alan Walsh, it appears as though One51 can now finally leave all that behind.

The company sees itself as a pure play in the rigid plastics market, with a strong institutional shareholder and a plan to list in Toronto in just over a year.

One51's 2,000 shareholders will have lost count of the number of times the company has presented a listing plan to its investors. Walsh and his team at One51 believe its time has come around at last.

But can One51 finally leave its all-too-eventful past behind it?

Looking towards a listing

One51 was set up in 2005, born out of the old Irish Agricultural Wholesale Society (IAWS) and named after its offices on Thomas Street, number 151. It is a building steeped in history - in 1798, Lord Edward FitzGerald, the Irish revolutionary, was first shot and then arrested while in hiding in the premises, later dying from his injuries.

Twelve years ago, the new boomtime investment vehicle was led by Philip Lynch, who at the time was seen as having a midas touch with business, particularly among farmers and the co-ops.

The company was to float on the Irish stock exchange, but the shares actually ended up trading on the so-called grey market run by the various brokers in Dublin.

In the midst of the boom, money was plentiful, and few questioned Lynch's strategy to build up a diverse portfolio of assets.

Existing assets transferred to One51 included a 26pc stake in infrastructure company NTR, bakery Irish Pride and a rendering business in Ballinasloe.

At the time, Lynch told reporters that the new company would pursue "a highly acquisitive strategy, with emphasis on waste management and renewable energy".

There were several potential acquisitions in play but, as always, Lynch kept his cards close to his chest, leaving everyone -including investors - in the dark about his master plan.

In 2006, the company raised €100m, a fund-raising which was between three and four times oversubscribed.

A year later, the company got involved in one of the most hard-fought takeover battles witnessed over the past decade when it began buying stock in Irish Continental Group (ICG), the owner of Irish Ferries.

The company was already the subject of a management buyout offer, and so began a tug of war for the business.

Lynch put huge energies into his efforts to control the group, which also attracted a third competitor - property developer Liam Carroll. With a number of large egos in the mix, no one wanted to let go of the prize, but ultimately, no one won and ICG remained a listed company.

By 2009, the economy was faltering, but Lynch was still talking about listing One51, at this stage focusing on its environmental businesses. Shareholders were beginning to get weary of the IPO story that never seemed to happen and pressure was heaped on Lynch.

A shareholder split bubbled over in 2010, when a falling share price and bumper executive salaries came into sharp focus. Lynch again fought a hard battle, only to be ousted in 2011 and replaced by Walsh, the company's little-known chief financial officer.

Walsh's goal was to sell off the various assets held by the company. What was once seen as a diverse portfolio was now dubbed by analysts as a "rag tag" of investments.

"I'm not sure people gave the organisation too much chance of survival if you look back two years - or probably even 12 months ago," Walsh said in 2013.

However, after selling off a number of the company's non-core holdings, refinancing its debt and focusing on plastics, the company was in a position to list last year. It had taken a majority a stake in Canadian plastics company IPL for just over €200m, while CDPQ and Fonds de solidarite FTQ, a labour-sponsored fund which supports investment in Quebec, held the rest.

While One51 felt it was ready for listing last year, some shareholders believed that the agreement - which would have seen the Canadian shareholders become investors in One51 itself - was too generous and would have unfairly diluted existing backers.

Earlier this month, CDPQ acquired Desmond's stake, giving the businessman a healthy profit and clearing the way the long-promised IPO.

New vision for the company

One51 is likely to move quickly with plans to list, and it is understood that Toronto will be its market of choice. There may be a secondary listing in Ireland.

The board has not yet approved the flotation plans, but is expected to back the plan. The new Canadian shareholders are believed to share Walsh's vision for the company.

The first step will be to merge IPL and the businesses in Ireland and UK, known as OPG (OnePlastics Group). At the moment, the North American finances are ring-fenced within that business, even though it is the most profitable part of One51's business. "One51 cannot extract funds out of that structure at present," said one market source familiar with the company.

At present, the synergies between IPL and OPG are extremely limited, and the merger would unlock the opportunity there.

A global refinancing of the business would coincide with this merger.

One51 will need to buy the 33pc of IPL which is does not already own. This will be more costly than had been envisaged last year. The stake was valued at almost €33m last year, and that was increased to €72m in Davy's most recent estimate for 2017.

When CDPQ and FTQ sell out of IPL, they will take stakes in One51, with CDPQ becoming a very significant shareholder. As it already owns around 23pc following the deal with Desmond, the Canadians are likely to own around 40pc of the company.

This essentially means that CDPQ and FTQ will "swap up" from IPL into One51. The Canadians are expected to be long-term shareholders.

The company now has four classes of investors: the Canadian investors; the co-ops, who have been shareholders since the IAWS days; a number of high-net-worth individuals; and private clients of Davy, who bought in during a 2015 fund-raising at 90c.

Sources said that the company will now move towards a listing, with ambitions to quickly reach ebitda (earnings before interest, taxes, depreciation and amortization) levels of €100m.

With peers in the sector trading at between seven and 10 times ebitda, it is likely that the company will list as one of significant scale. The shares are now trading at €1.90, and according to Darren McKinley, senior equity analyst with Merrion, there is upside.

"The share was trading at €1.80 around 12 months ago, and since then, they have continued to tidy up the business, selling off its Clear Circle business and environmental services division, as well as making bolt-on deals in its European division," he said.

"It has a core focus now, which has resulted in a high-margin, greater profitability business with strong cash flow. And there is opportunity for more bolt-ons."

Ebidta from its latest acquisition, Macro, is estimated to be US$19m (€16m) which could bring One51's ebidta levels to around €80m in 2018. That is without any additional deals, and Walsh clearly has more acquisitions in his sights. It is understood that a valuation of around CAD$1bn (€660m) is well within its reach, and it will continue to be a consolidator in the sector.

It may not look anything like the company that was born out of IAWS in 2005, but finally, One51 looks set to deliver on its promise of becoming a fully listed plc.

Sunday Indo Business

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