We’ve all heard of Sir Richard Branson and Sir James Dyson. Their public profiles are almost as big as the organizations they oversee.
Sir James Ratcliffe is the richest person in the UK ($14.3 billion), and chances are you have never heard of him.
At the age of 65, he is relatively young, which makes it even more impressive that his business trajectory only started at the age of 40. Yes, in a span of 25 years he went from being an employee of a company, to UK’s richest person.
You are probably thinking that he founded some technology company. You would be mistaken.
Jim Ratcliffe is the founder and majority owner of privately held INEOS, the third largest chemical manufacturing company in the world. In 2017, INEOS produced $60 billion in revenues and $7 billion of profits, and has 15,000 employees. Ratcliffe’s story of ascension is a fascinating one as well as his Warren Buffett-like management approach.
Jim Ratcliffe was born on October 18th 1952. His father worked in construction while his mother was an office administrator. At age 10, he moved to Yorkshire where he attended Beverly Grammar School. He attended the University of Birmingham with a degree in Chemical Engineering.
After graduation he worked for ExxonMobil for a few years before heading off for the London School of Business to get his MBA. Afterword he worked for Courtaulds.
Up until age 35, his career path was rather traditional. But then he got a call from a headhunter asking if he would be interested in joining a venture capital firm. Ratcliffe admits, what also helped with the decision was they were offering to triple his salary and give him a new BMW.
In 1989, he took the job at Advent International. Advent was founded five years prior and quickly grew into a sizeable private equity firm. By 1989, they raised three funds, one $14 million, a second $225 million International Network Fund, and a third $231 European Special Situations Fund.
Ratcliffe took the position at Advent in the hopes that it would help him spot an opportunity that he could run himself. He also knew he needed real world experience valuing assets, negotiating, and putting deals together.
He talks of the experience:
“I went into venture capital in the very, very early days of venture capital, so there was little knowledge or understanding of the nature of it in those days. I was sort of given a desk like this. There was nothing on it. Nobody tells you what to do. They just say go out there and do some deals and invest some of our money. The two lessons I learned quite quickly was that: if you did bad deals, you got fired; and if you did no deals, you got fired. So it was quite a sort of focused environment really because you had to go out there do deals, do good deals because you had to invest the money wisely.
I spent five years doing that. The first deal I did was appalling. But it’s part of the learning curve, I suppose. Then I did one or two sort of reasonable. Then I came across a deal which was really interesting, which was buying this fine chemicals division of BP. It was an area, obviously, relative to my background, which was chemicals and materials.”
Ratcliffe wanted to hop across the fence and run the business. He spoke to Advent about it. He was the first person at Advent to ever propose such a thing.
Ratcliffe explains his decision:
“The frustration in venture capital is that you spend an awful lot of time working on deals. You’ll do maybe one in 10, then when you do them, you sit on the board. But of course, you’re just an advisor on the board. You’re sort of an observer. Some of us feel like we could do it better than the incumbents and that was always my fear. It’s frustrating sitting on the board when you feel you could do a better job of running it.”
Advent didn’t understand why he would want to give up his perks to have the hassles of being an operator, but they agreed. He had to put all his net worth on the line. All his investments, his house, everything. “You become very focused.”
In 1992, at age 40, he became the co-founder of INSPEC. The business plan was quite simple. They focused on buying quality assets from bluechip chemical companies. When the major chemical companies shed assets INSPEC would have a look. They would acquire them with debt and then look to turn them around and double their cash flow within five years.
“You can’t assume that they [major chemical companies] were getting rid of them because they were poor businesses. We got some outstanding businesses.”
They first acquired the fine chemicals division of BP for $87 million. They then bought a chemicals company in the United States $11 million. Soon after they went public in a $164 million IPO.
In 1998, INSPEC was sold for $1 billion, and at the same time Ratcliffe bought out INSPEC’s ethylene oxide facility and founded INEOS.
Over the next ten years Ratcliffe under the INEOS umbrella acquired 22 companies. The most notable was his 2005 acquisition of BP’s olefins and refining business for $9 billion. He had his eyes on this asset for a couple years. It was a big deal, similar to a minnow swallowing a whale. He knew it was being smothered in overhead, so Ratcliffe knew they could make it much more profitable. INEOS and BP agreed on price, but INEOS was only given 10 weeks to complete due diligence and recapitalize their current debt to make room for more debt. This would normally take a year or more to do, but Ratcliffe pulled it off. The deal tripled INEOS’s revenues. Many viewed it as a big gamble, but Ratcliffe said, “You are only going to get one opportunity like that in your life.”
How is INEOS different from other major chemical companies like BASF and Dow?
BASF and Dow have 1,000+ employees in their home offices. INEOS has 40 people. INEOS is comprised of over twenty independent businesses, and they are truly independent. Each business has their own board. They have their own IT staff, their own HR, their own legal. The IT, HR, Legal, etc of each business unit work together across units as a federation to set up best practices.
INEOS sits on the boards of each business but they expect each board and management team to manage their people and enjoy the rewards of those separate businesses. If the business units are run well, Ratcliffe wants their management teams and employees to get rich. INEOS allows management and employees in each business to take equity in the individual businesses.
Ratcliffe explains, “One of the keys in our development is to get people to behave like owners rather than employees. Because if people behave like an owner, you don’t need policemen watching over them all the time because they’re generally striving to be successful in the business that they’re managing.”
Ratcliffe and INEOS’s management style is a big reason the company has scaled so effectively.
“If you look at BASF, it’s completely different, it’s all driven from head office. Exxon is all driven from head office and the people out in the businesses have limited ability to make decisions. INEOS has a different model. It’s a model where you can continue with a growth agenda.”
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