Ricardo Gutiérrez Muñoz • Vertical Integration


Mexichem had a dramatic expansion over the last 10 years. But the company did not move in the direction of most multilatinas. What set Mexichem apart was that it directed all of its financial and operations artillery towards vertical integration.

For Ricardo Gutiérrez Muñoz, general manager of Grupo Empresarial Kaluz, the holding company of the enterprise Mexichem, of which he is the former CEO, the most important decision of the last 20 years was to become an industry consolidator, buying up customers, suppliers and competitors.

The results have been positive. By bringing together more than 24 companies in 39 countries in the last decade, it has become the world’s largest producer of plastic pipes and fluorite. Measured in dollars, its sales have doubled in the last five years, and its Ebitda has almost tripled. Returns for the shareholders have been fantastic. The price per share has quadrupled in those five years.

The strategy of vertical integration makes good business sense when one considers that Mexichem (mehekem for foreigners who want to pronounce it correctly) is primarily a producer of commodities, as Gutiérrez Muñoz said – basic chemical materials like chlorine and caustic soda. To move from primary consumption to end user, they provide added value to these raw materials. In addition, scale is a barrier to entry for new competitors because it enables them to dilute fixed costs and thus obtain higher margins. With its larger size, it can set the price of the raw materials. “The most important thing in commodities is being able to set the price,” he explained.

In addition, it provides an advantage when it comes to buying companies. “Vertical integration creates important synergies that lower the multipliers (price indicator) for what we buy.” That’s why Mexichem is fast and aggressive in its acquisitions. Even if the companies aren’t for sale, the synergies enable it to make very attractive offers that can convince even those who are most determined not to sell.

Still, in this fast-growth era, the company imposes iron-clad limits that ensure financial discipline. “This company has to grow by 20 percent per year, maintain an Ebitda margin of 20 percent, and net debt of no more than double the Ebitda. That’s a very powerful limit that we have never violated,” he explained. With that growth rate, Mexichem will be one of the 100 largest companies in the region within two years, even as it maintains its profitability and low debt level.

The company manages its risk by being in several regions of the world, and by setting the prices in its sector. “Diversifying risk hasn’t tempted us to enter other businesses that we don’t know and where we aren’t the leaders.”

At the same time, it raises a new problem. To sustain its goal of increased sales, it can’t do things on a small scale. Being forced to do large operations increases operating, cultural and market risks, Gutiérrez Muñoz said. It even obliges them to bypass markets like Chile, Paraguay or Uruguay, which would be too small to serve its growth plans.

That’s why the future plans of Mexichem are more complicated. Gutiérrez Muñoz doesn’t expect growth in Europe, and he sees problems expanding into China and Russia. “In China, we see problems doing business. In Russia, we have looked at several companies. It’s a large and growing market, but everything has to go through the government.” New possibilities such as Africa are also on his radar.

What does seem clear is that his strategy will continue to be acquisitions. He’s not interested in building plants from the ground up because, he said, the chemical industry is very cyclical and volatile. “It would be extremely dangerous to build 10 tubing plants.”

As has happened in the last few years, Mexichem quickly introduces an aggressive modernization plan for the operating, information and marketing systems once it has made an acquisition. The firm’s directors are given a kind of blank check to carry out their projects, which ultimately is a crucial element for retaining talent. One of the things an executive appreciates most is support for his projects, along with recognition, he said.

The office of Kaluz in Mexico City has more of an air of austerity than of opulence, although there’s no doubt it could afford the opulence. But that may be truer to the sense that it has to have the air of a headquarters of a serious conglomerate, aggressive and tremendously successful in its initial expansion, and this no doubt will set an example for those who come here.

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