RICH PICKINGS: The richest ANZAC

ANZAC Day provides the perfect opportunity to reflect on the complex relationship between Australia and New Zealand. On the field of battle, the two nations are staunch allies. In every other field – particularly sporting ones – we are almost always rivals.

Australians also have a knack for stealing their most famous and claiming them as our own – Phar Lap, Russell Crowe and Crowded House are all good examples.

But there is one area where we must bow down to our brothers and sisters from across the Tasman – wealth.

While Australia has an admirable crop of billionaires, they can't touch Auckland based packaging king Graeme Hart.

According to Forbes, Hart is worth $US5.3 billion, well ahead of Australia's richest person, Fortescue Metals Group chief Andrew Forrest, who was ranked with $US4.1 billion.

And with speculation building that Hart may be set to off-load parts of his $US10 billion packaging empire, this media-shy master investor might be about to further increase his lead over Australia's richest.

Hart is in the process of restructuring his global packaging empire, the building block of which was the New Zealand paper and packaging group Carter Holt Harvey, which Hart's Rank Group purchased in 2006 for $3 billion.

He paid $3 billion for Swiss packaging giant SIG in May 2007 and another $3 billion for the packaging assets of Alcoa in December 2007. The Alcoa acquisition included a business called Reynolds, which houses a plastic wrap-maker and a bottle cap-maker. Hart has also made another $1 billion worth of smaller acquisitions along the way. 

Hart is now in the process of combining most of these assets under the Reynolds Group banner. The company, which has revenue of more than $4.5 billion and is the second-largest packaging company in the world, recently made the news after releasing some details about its financial affairs as part of a $US3.4 billion debt raising. That debt raising and the restructuring has sparked speculation that Hart is planning to float or sell his packaging empire. And with the global economy in recovery mode, the value of such a deal is likely to be rising steadily.

Of course, Hart isn't saying much about his intentions. And that's partly what makes him such an intriguing figure – he's fearless in the way he takes on debt, able to spot turnaround opportunities across a range of sectors, and so private that every little factoid about his business dealings is eagerly devoured.

It's not surprising that one of the most comprehensive interviews conducted with Hart is now seven years old. Back in 2003, Business Spectator managing editor James Kirby, then writing for BRW, travelled to Auckland to try and talk with Hart, and eventually succeeded through sheer persistence.

What Kirby found was a driven and focused entrepreneur.

"I don't want to seem arrogant or distant, I want to be seen as responsible,” Hart told BRW. "I want to build companies with stable and predictable cashflows.”

Let's look back through Hart's big deals to determine the keys to his money-making strategy.

Don't be afraid of size

After leaving school at 16 to become a panel beater, Hart tried a number of different businesses (including party hire) before entering the printing game. He built up his Hart's Printing Company during the 1980s and in 1987 listed his primary investment vehicle, Rank Group, on the New Zealand Stock Exchange.

In 1989, he made his big move. While the Rank Group had just $NZ8.5 million in assets, Hart wasn't afraid to buy the state-owned New Zealand Government Printing Office, which had a book value of NZ$38 million – instantly tripling the size of his business.

In 2002, Hart did it again, when his food business Burns Philp bought Goodman Fielder, which was then twice the size of Hart's company.

His packaging purchases have tripled the size of Rank Group, yet again.

Don't be afraid of debt

The key to many of these deals is Hart's willingness to take on large amount of debt. At one stage, Burn Philp had a gearing ratio (the measure of net debt to equity) of 400 per cent. The packaging businesses are also carrying around $6.5 billion worth of debt, although reports suggest Hart has been working to reduce gearing levels ahead of a possible float.

While debt has bought down many entrepreneurs, Hart seems to be able to make it work for him in a most spectacular way.

Drive a hard bargain

One potential reason Hart is comfortable with so much debt is his ability to spot a bargain and drive a hard deal to get assets on the cheap. The New Zealand government printing deal mentioned above is a great example – although the company had a book value of $NZ38 millon, Hart got it for just $NZ20 million.

His deal to buy New Zealand book chains Whitcoulls and Angus & Robertson netted Hart a 400 per cent return on his initial investment. He also doubled his money through the Burn Philp and Goodman Fielder deals, helping to boost his fortune from $US2.7 billion in 2007 to $US5.1 billion in 2008, according to Forbes.

Be ruthless about costs

Hart is legendary for his ability to take costs out of a business any way he can. Inefficient operations are closed, struggling businesses are shut or sold off and headcount is typically reduced, particularly at head office. At Whitcoulls, Hart is even reported to have clamped down on a deal that gave family members of staff a discount.

Cash is king

The point of all this cost cutting is to free up cash – particularly crucial given the level of debt Hart typically needs to service in his deals. As Hart told Kirby back in 2003, cash is everything.

"Institutional investors look for revenue growth. They have this perspective that an upward trajectory in revenue growth will underpin an upward trajectory in your share price. But I remind them there are a lot of other features that are fundamental to this business or any business. I mean cash and profits. There is nothing wrong with a company that has zero revenue growth and becomes very profitable.”

Keep your best people close

Hart is famous for having a very small management team – it's basically him, a personal assistant and his trusted lieutenants, such as his turnaround specialist, Tom Degnan. Hart has also paid tribute to his wife Robyn in the past for helping to get him through tough patches.

Keep trading

Another feature of Hart's style is his almost constant trading of assets. When he acquires a large group, it's common to see various divisions packaged off and sold separately. In cases where Hart has bought an underperforming group of businesses, selling off a single division helps Hart highlight that specific business' value – and maximise his own return.

Stick to mature industries

Whether it is deliberate strategy or not, Hart seems to stick to mature sectors that some would consider to be dinosaur industries – printing, retail, food, packaging and panel beating are all well established and all relatively low margin. But they are also easy to understand, and perhaps this helps make turnarounds just a bit easier.

Keep a low profile

Hart's publicity-shy approach isn't all about maintaining his privacy. Over the course of his career, not having to deal with the media or investment relations sides of the business must have freed by countless hours to actually concentrate on running his businesses. And when you're sitting down to negotiate a deal, surely having a bit of mystique wouldn't hurt.