Plastic fantastic

By Fiona Rotherham

Thursday 1st August 2002

Two years after a $25 million management buyout, Alto Plastics is carving a name as a plastics innovator. Fiona Rotherham took a look

Mark Wheeler hands over an orange bottle, then a blue one. The orange one has a spongy, rubber-like texture while the blue has the standard smooth, shiny finish you normally find on shampoo bottles. Wheeler, chief executive of West Auckland-based Alto Plastics, has taken a punt on the soft-touch bottles becoming a big hit in this part of the world. Already they're in demand overseas by high-quality personal care product manufacturers.

Alto has bought the local rights to the technology and will be the first in Australasia to make the tactile bottles.

It's all part of Wheeler's drive to make Alto an innovative plastics "hotshop". Already the company is one of the country's largest rigid-plastic moulding companies, exporting around 25% of its manufacture, mainly to Australia. It makes a wide range of plastic packaging, from childproof medicine bottles to beverage bottles and sexy cosmetic containers, including the plastic packaging for Nutrimetics cosmetics worldwide.

The company was spun off from Christchurch electronics manufacturer PDL in October 2000. Wheeler, who had been manager of the former PDL Plastics for just over a year, negotiated for five months before he got the terms and price (marginally over book value) he wanted.

Wheeler and five other senior managers own the company, along with ANZ Private Equity. The bank, in a groundbreaking deal, provided both equity and debt for the management buyout. ANZ has since gone on to invest in 10 other New Zealand and Australian companies, including two other management buyouts here. Joseph Healy, ANZ's head of private equity in Australasia, says research shows companies that undergo management buyouts perform significantly better than under their previous ownership. "Our experience with Alto confirms that. We were very impressed by the Alto management team and Mark, in particular, as a first-class chief executive. Our initial view of him has not changed."

Healy says the success of management buyouts often hinges on having someone experienced acting as both a coach and mentor to the management team. In this case it was Alto chairman and former Citibank New Zealand chief executive Richard Wilks.

"Mark and his team were at first a bit apprehensive about involving Richard. They thought he'd just behave like a banker or be a policeman on behalf of the bank, and it has been quite the opposite."

Wilks says that in management buyouts, the senior team is usually made up of divisional managers with little experience in the centralised treasury function. He's given advice on everything from understanding shareholder agreements to foreign exchange practices and supplier agreements. Divisional managers are not heavily involved in strategic planning either, he says.

"They tend to work towards business plans and annual budgets. I've worked with them on strategic analysis, understanding how to marry the shareholder expectations with their competitive position, the constraints on the business and its critical success factors. Most businesses have three or four things they have to get right or they'll get into difficulty. To create shareholder value they need to understand what those things are and whether their day-to-day activities are consistent with them."

Wilks says the private equity market has created an opportunity previously lacking in New Zealand for small to medium-sized companies like Alto to really flourish.

Even though the management team had offers from several other Sydney-based private equity specialists, Wheeler trusted Healy and wanted to work with him. "Business is all about relationships with people, more than anything else."

The bank's stake has not been revealed. Unusually, despite the ANZ putting up the lion's share of the equity, the managers retained ownership control, with 75% of the voting rights. "No one else in this business does that. In deals we do, we work with management teams and support true management buyouts, where they're buying and controlling the business, even if we put in 70% to 80% of the equity," Healy says.

Wheeler owns half of the managers' share. "I'd always wanted to own my own business. I just wasn't sure what it would be," he says.

Wheeler is only 35 - and looks more like twentysomething, despite his four children. He is regarded as one of the young guns of the Auckland business scene, and comes across as a go-getter who's willing to take risks, but only calculated ones. A former civil engineer, Wheeler decided it would take too long to reach the top in the engineering game, and he was in a hurry. "I really wanted a company car," he says wryly. He ended up in the plastics industry, running an Australian-owned pipemaker based in New Zealand, before PDL wooed him to its plastics division.

Wheeler's projections of 10% growth in revenue in the first two years, to $50 million a year, are on target. By comparison, under PDL ownership the company turned over just under $35 million in the year ending March 2000.

As a private company, Alto doesn't have to reveal its profit figures, though Wheeler claims it is "very profitable". He reckons New Zealand managers are not rewarded enough for increasing shareholder value. "When you do a management buyout that's something you focus on. You don't have the bureaucracy and politics you have in bigger businesses."

Another advantage is no longer needing to fight for capital within the PDL group to invest in Alto. Now the plastics producer's profits are ploughed straight back into upgrading its Auckland and Christchurch plants. It has 400 employees and some of the most modern plastics production machinery in the world. It is constantly investing in new processes because that's where Wheeler sees future growth and exports coming from.

"We're investing in some projects this year that will be in the market around Christmas. We believe these will be very exportable. We're focusing more on product with a higher intellectual property component."

Take the soft-touch bottles, for example. They are more about fashion than straight production.

For another example, look at the work done for Aucklanders David and Mari-Carmen Morpeth. Under their Marzena brand, the Morpeths invented a leg-waxing product that comes in a specialised roll-on dispenser, similar to a deodorant. They originally talked to overseas producers about the design but weren't happy with the constant travel that would involve. Morpeth has worked with Alto from the concept phase, meaning he was able to refine and adjust the complex design to within fractions of a millimetre. "Injection moulding is the type of business where if you don't get it right, you can make a very expensive mistake," Morpeth says.

Alto also designed the new cap for Rio Beverages' Ikon energy drink. The cap releases an effervescent tablet packed with vitamins into the drink once the consumer pops the patented top. The idea is to keep the vitamins fresh, as they can deteriorate in liquid over time. The product recently won the "Most innovative non-alcoholic beverage packaging" prize at the prestigious Sial d'Or awards, beating competitors from 26 other countries. There has been a lot of international interest in the product, with overseas companies coming to New Zealand to discuss manufacturing it here and selling offshore.

The local inventor, Michael Coorey, originally offered his idea to PDL, who turned it down just prior to the management buyout. Rio Beverages then purchased the licence for this part of the world. It's a pretty safe bet that Wheeler would have grabbed the chance to own the intellectual property, rather than just commercialise it. True to form, he's making the best of his opportunity and is working closely with the inventor and Rio to cash in on the international interest.

Fiona Rotherham
fiona@unlimited.net.nz

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