Andrew Heathcote Rich Lists editor

Andrew is BRW's Rich lists editor and is responsible for the Rich 200 and Young Rich flagship issues. He also reports on matters relating to wealth and investment for BRW and The Australian Financial Review.

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How Anthony Pratt is taking America, one town at a time

Published 21 March 2013 07:20, Updated 21 March 2013 14:57

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How Anthony Pratt is taking America, one town at a time

Anthony Pratt walks the floor of his paper recycling mill at Conyers in Georgia. Photo: Marshall Peterson

Valparaiso, Indiana, is a classic small American town.

Well off the tourist trail, it is home to about 30,000 people, biting cold winds, Porter County Jail and an annual street parade called the Valparaiso Popcorn Festival.

It is not a place where fortunes usually rise or fall but for Australia’s fifth richest person it is crucial.

Anthony Pratt, an heir to the Pratt family cardboard fortune and chairman of Pratt Industries in the United States, owns the world’s biggest box factory in Valparaiso and after flying in from his home in Atlanta, Georgia, is keen to show it off.

More on Pratt in America:

Its scale is suitably impressive. The 46,452 square meter Valparaiso plant makes up to 2 million boxes a day and turns over about $200 million a year. It is one of many factories Pratt has built in the US in recent years.

Anthony Pratt has used a hub-and-spoke strategy to build his business in small American towns, building some plants and buying others.Photo: Marshall Peterson

Since 1990, he has taken Pratt Industries – as the business is known in the US – from the 45th biggest corrugated box maker in the US to the fifth biggest. He ambitiously describes the growth opportunities awaiting him in the US market as “infinite”.

Anthony Pratt and his family were valued at $5.45 billion in the most recent Rich 200. If their fortune is to grow substantially over the coming decade, it is in the US heartland where it is most likely to happen.

Pratt’s American dream is a mass takeover and he’s happy to do it one town at a time.

As a manufacturer, Pratt is an atypical billionaire; just 4 per cent of the Rich 200 make most of their money from the manufacturing industry.

His focus on the US also sets him apart from the Rich 200 pack.

Pratt spends about a third of the year at his homes in Atlanta and New York City.

Both homes befit a billionaire. Pratt’s next door neighbour in Atlanta is the Governor of Georgia, Nathan Deal, who lives in a house built by former US President Jimmy Carter when he was state governor.

In New York, Pratt lives in the penthouse of the exclusive Sherry Netherland building on Fifth Avenue. The apartment has striking views of the city’s major landmarks, such as the Empire State Building, and sits at the foot of Central Park.

It has been in the family since the 1980s and is probably one of the most valuable apartments in the world.

The New York Times reports that an apartment on a lower floor in the same building was listed for sale last year at $95 million.

Pratt meeting with the president of Staten Island, James Molinaro.Photo: Gabrielle Revere

Travel between his homes (including the family mansion of Raheen in Melbourne) is done via his Bombardier Global Express jet, worth about $50 million. Road transportation is taken care of by chauffeurs; Pratt doesn’t own a car.

Although lavish, Pratt’s lifestyle hasn’t precluded growth in a “down and dirty” industry.

Over the past decade, sales at Pratt Industries increased by about $1 billion.

Pratt is expecting to collect revenue of $1.5 billion in the US this year, up about 20 per cent on 2012.

Pratt Industries is growing faster than the family’s flagship company Visy, which is Australian-based and co-owned by Pratt and his sisters, Heloise Waislitz and Fiona Geminder, since their father Richard’s death in 2009.

Although Pratt Industries has a big and growing presence in the US, the family’s first attempts to crack the US market did not go well.

Richard Pratt bought his first paper mill in Georgia in 1987. Like most old mills, it made paper from wood chips in a labour intensive process.

Pratt took over the US business in 1990s when it was struggling badly. He then set about modernising the operations.Photo: Marshall Peterson

By 1990, the business was losing money and it was decided a family member would have to move to the US to manage it. Anthony, who was just entering his 30s, got the job.

The US offered him a chance to get some management responsibility away from his famous father and build a big business from the ground up.

One of his first decisions was to shut the poorly performing mill, he says, and build one that was more similar to what his family had in Australia.

Pratt says the decision to invest in new mills has given his business a substantial advantage over Pratt Industries’ competitors, many of who operate wood-to-paper mills that are up to 60 years old.

Newer mills can produce thinner boxes from recycled paper, which are cheaper to ship and buy.

“America is the land of entrepreneurial spirit,” Pratt says.Photo: Gabrielle Revere

“Our competitors are handcuffed to the forest,” he says.

Pratt uses what he calls a “hub and spoke” approach to build his US empire

First, he finds a highly populated area that offers a steady supply of recyclable paper and puts a mill in it, at a cost of about $200 million.

For each mill, he also builds about three corrugated box factories, at a cost of about $50 million each, to service neighbouring markets.

For each box factory, he then acquires (rather than builds) about three established “sheet” plants, for upwards of $12 million each.

Sheet plants produce specialist boxes, such as displays in supermarkets that contain potato chips. They give Pratt Industries access to the smaller quantity, higher margin end of the box market.

Pratt has about 40 plants and factories across the US but wants a lot more.

Most are concentrated in the south-west (where labour laws are most conducive to manufacturing) but eventually he wants them all over the US.

“Sheet plants have a shipping radius of about 80 miles,” he says. “They are very community orientated so if you want to have the whole of America covered you need one every 160 miles.”

The mills and box factories are the biggest earners and sell mainly to big companies.

He describes his US sheet plant business as the biggest in the world.

“America is the land of entrepreneurial spirit,” Pratt says.

Pratt focuses on building the top 20 people in his team.Photo: Marshall Peterson

“It’s what makes America regenerate so well. It’s the propensity of a ‘mom and pop’ to mortgage their house and start a business. There are zillions of those people [in the US] and small businesses tend to buy from sheet plants.”

Pratt says his “hub and spoke” plan is helping him build a McDonalds-style mass distribution business.

“I’ve always had the sense that a distribution system with a lot of small factories was going to be really powerful one day in being able to sell all sorts of things through them,” he says.

The strategy is not without risks. It is capital intensive and being rolled out in a competitive market that is reliant on regulatory support.

Pratt doesn’t seem worried.

“The most important thing is to take a long-term view, be persistent and have good people,” he says.

“The top 20 people in your company have to be really good. It takes a long time to build a really good team.”

The chief executive of Pratt Industries, US-born Brian McPheely, was appointed when Pratt gave up his day-to-day management responsibilities in the US in 2009 to become executive chairman of Visy.

Pratt says he has a strong preference for hiring senior managers from within the business and describes McPheely’s appointment in simple terms.

“We have seven divisions and each is run by a manager,” he says. “Of those seven divisions we found the one who had made his budget seven years in a row and made him the boss.”

The general manager of one of Pratt’s three US recycled paper mills in Shreveport, Louisiana, Luis Henao, says managers are charged with responsibility for new mills from the concept stage.

“After we do America, we will do Europe but there is a way to go here first,” Pratt says.Photo: Gabrielle Revere

“The person who will run the mill is the one who gets to build it,” he says.

Pratt’s other US paper-making mills are in Conyers, Georgia (where he also has a waste-to-energy plant – see “Reuse, recycle, reap the rewards” and New York. He plans to build another hub near Chicago soon.

On New York’s Staten Island, elected official and borough president James Molinaro insists that the island’s mill, which many locals opposed when it was built, has been good for his constituents.

“Plus, [Pratt Industries] are great neighbours,” he says in a distinctive New Yorker drawl.

Until 2001, much of Manhattan’s rubbish was dumped on one the world’s biggest rubbish dumps at Staten Island.

The highest mound at the ominously named Fresh Kills landfill is higher than the Statue of Liberty.

New York’s decision to close its landfill, and the rise in the popularity of urban environmentalism, which former vice president Al Gore spurred on, have been fillips for his US business, Pratt says.

“We went from being a company that was fighting to sell recycled paper to all of a sudden becoming slightly trendy,” he says. Pratt plans to substantially expand his nascent Asian business to speed up Visy’s growth, but says further overseas expansion for Pratt Industries is not yet required.

“After we do America, we will do Europe but there is a way to go here first,” he says.

“We apply the wet-edge theory of growth. You don’t make your way over there before you are finished here.”

Pratt, who owns 100 per cent of the US business, says he has never been tempted to sell Pratt Industries but there have been offers.

The packaging industry in the US has undergone substantial consolidation since Pratt got involved.

“That’s America for you,” he says. “People [in America] buy and sell things all the time.

“I would never voluntarily sell our business. Part of taking a long-term view is that you don’t sell.”

After living in the US for most of his adult life, Pratt says he still feels more Australian than American but the US, with its mass of small towns, offers opportunities he can’t get elsewhere.

“In America, you have to go low cost and be patient because margins are skinnier here, but your growth is forever,” he says.

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