Packaging Phenomenon - Zeus

Cork entrepreneur Brian O'Sullivan has an indefatigable appetite for acquisitions. The founder and CEO of Zeus Packaging Group was as busy as ever through 2019, completing five takeovers in Ireland and the UK, for an outlay of c.€20m.

They included hygiene supplies company Essential Supplies in Naas, which recorded turnover of €6.5m in 2018. In the UK, Zeus acquired VaioPak Group in Essex, which specialises in takeaway coffee cups and has annual turnover of €6m. Smith Bateson, a Liverpool family business involved in paper and polythene distribution dating back over two centuries, was also added to the Zeus portfolio. In addition, Zeus acquired the UK division of Dutch company Van Der Windt, a food services packaging business. The two UK firms have combined turnover of c.€40m.

With turnover of €151m in 2018. Zeus is heading for sales north of €200m in 2020, impressive growth from the €106m recorded six years ago. The group, based in Rathcoole in Dublin, now operates in 13 countries and its divisions include industrial packaging, food and beverage packaging, janitorial and hospitality supplies, agricultural and fashion packaging.

O'Sullivan (50), a teacher turned entrepreneur, is the group's sole shareholder. His strategy since establishing Zeus in 1998 has been one of no-nonsense business-building, with acquisitions financed by bank credit rather than outside investment.

O'Sullivan says that 2020 will be a year of consolidation for Zeus. "I spent two years before 2019 lining up these latest acquisitions - they don't happen easily. 2020 is about making them all work, but if the right deal comes along, we've got some firepower left. That's what you have to do to be at the forefront in your industry."

O'Sullivan is also planning to step out of the CEO role at Zeus and hand it over to group MD, Keith Ockenden. The transition feels right for O'Sullivan, who intimates that he prefers a salesman role to that of a micro-managing a business group with so many moving parts.

O'Sullivan was a young teacher when he found a job during the summer holidays to sell agricultural packaging. When an opportunity arose to become the Ireland distributor for a Dutch pallet-wrapping company, O'Sullivan took it. "I did a good job and built up many industrial customers, who began asking for more packaging products. Zeus started from there," he recalls.

A key early client for Zeus was Baxter Healthcare in Mayo. "I knocked on their door at the right time, as they were having issues with product packaging. I knew how to improve it for Baxter and I did it. When I secured a big multinational like Baxter as a customer, I was sure that I could make Zeus work”.

I leave the nitty-gritty of the acquisition deals to our experts but my task is to make sure that the businesses can integrate with Zeus. Many deals involve family firms joining Zeus as the larger company. “I've made mistakes handling this transition in the past but we’re much better at it now”.

O’Sullivan's opportunism is illustrated by the 2018 purchase of Alder Tissues in Finglas, established in 2013 to manufacture toilet and kitchen rolls. At the time of this deal, relatively small in the Zeus scheme of things, the start-up had run out of working capital. The book value of Aldar’s fixed assets was €2.9m. stocks €340,000 and debtors €660,000. This total of €3.9m was offset by €3.2m owing to creditors, and O'Sullivan paid €250,000 cash to take control. According to the Zeus owner, the deal was attractive because of Alder's customer base.

Zeus Packaging operates on a gross margin of 21.5% and an operating margin of 2.8%. O’Sullivan's growth strategy was enabled by Danske Bank until 2014, and since then Ulster Bank. The December 2018 balance sheet for Zeus Packaging Group shows total liabilities of €50m and assets of €76m, including €10m in goodwill. Trade creditors were €20m at year-end and creditor days were pushed out to 107 from 49 the year before, according to Creditsafe. Bank debt at end 2018 was €23m, down from €33m the year before, and the interest payment was €720,000.

The company's cashflow statement records receipt of €11.7rn from disposal of tangible assets, and a loan repayment of €12.8m. The accounts note a book loss of €640,000 on this transaction, which seems to have been a property sale and leaseback, the proceeds of which went to the bank.

Zeus avails of invoice discounting to maintain cash flows, with €12m of the €30m trade debtors book financed with Ulster Bank in this manner. Zeus recorded Ebidtda of €8m through 2018, up from €7.5m the year before. Though the company's net profit in 2018 was €2.3m, its cashflow that matters to bank lenders, which is why O'Sullivan was able to continue his buying spree through last year.

“We've managed our growth and acquisitions without any outside investment. There was no fairy godmother for Zeus, just a pure drive to build it. Perhaps I will look at sourcing investment over the next three to five years, but let's be honest my type of business isn't sexy. Overall, I’m very comfortable with where we are with Zeus and with the level of borrowing that we have now.”