Diesco Group in Expansion
March 20, 2017
Ten challenges in one: being a group
Diesco begins its growth project underpinned by a financial deal of RD $ 4 billion with Goldman Sachs Group.
Increased production capacity, new real estate business, more international presence and possible acquisitions are in the target view of the group, tuning 50 years old. To lead it by that route of expansion is the task of its president, Manuel Vicente Diez Cabral.
The Petroquímica company, created by Manuel Diez Méndez in 1957, was the first step of what became the Diesco group in 2000, led by Manuel Vicente Diez Cabral, celebrating its 50th anniversary with an agreement with Goldman Sachs.
The greatest obstacle to Dominican business growth is not the lack of ideas, or the lack of opportunities. Nor is it, despite its impact, a low innovation capacity and a lack of strategies for external markets.
For Manuel Vicente Diez Cabral, Executive Chairman and Chairman of Diesco's Advisory Board, the central explanation is not those factors but the difficulty of accessing financing for expansion. The changing conditions of the world economy, the constant rearrangement of markets and accelerated changes in technology make it compulsory for a company to keep growth in mind. But this requires financial muscle.
Diesco business group is clear that this is the way to go. And it has just secured a luxury support to aimed its strategy: a financing of RD $ 4 billion.
It is not simply a credit. This is a true long-term financing program for expansion, approved by Goldman Sachs Group, perhaps the most iconic entity in the US financial sector.
For its expansion process, Diesco wanted a strategic financial partner and found a heavy weight: Goldman Sachs.
A benchmark when talking about analysis and investment banking, investment management experience and two long-term structured loan programs.
The Goldman Sachs-Diesco financing agreement transcends the boundaries of a normal lending operation. It is the first that the US financial giant signs with a Dominican conglomerate, is the most important leverage operation in Diesco's five-decade history, and is a new path that opens up for the national industry that requires first-class international support category.
In the long-term horizon of the Diesco business group, expansion is not simply a theoretical purpose, but an unchangeable goal in which the entire team of employees is already mentally focused. But in order to meet this, we need strong foundations and, therefore, Diez explains, "we decided that we needed a strategic financial partner, to work with us to point out to a sustained growth of the Diesco group."
The project of finding that international partner was assigned to the group of professionals of the capital business of the group, who was in charge of preselecting three entities to whom it would be interesting to present the plan. Finally, they decided to expose it to the demanding criteria of evaluation of the mythical Goldman Sachs Group.
After this approach, the positive interest that arose in the New York institution resulted in the beginning of the exhaustive due diligence, which always makes its applicants for special credit support programs. This involved multiple visits by experts in all areas and detailed work by a team of auditors.
It was so thorough that from the day of the first meeting with Goldman Sachs until the end of the financing program, eight months passed. "This was a process in which they thoroughly examined all aspects of the company, from the financial statements, to operational management and environmental policies," explains Diez.
But from such a rigorous examination, your business group is also a beneficiary, since you can realize how you see it from the outside, and what your strengths and weaknesses are. Even more valuable if we consider that it is an evaluation carried out by non-Dominican experts and that, therefore, they examine a company in the light of its standards, the same ones that they apply in their evaluations to companies of any other country.
The due diligence resulted in the final approval of the credit program for Diesco. A double victory for the Dominican group, both for having passed the financial giant's hard examination and for implying that its growth plan took a huge step.
"They are RD $ 4 billion in the first part of the transaction and, subject to new developments in our plans, we will have more access to capital," specifies Diez. As is normal for a large lending operation, there is a debt replacement component, but "Goldman Sachs' key contribution is its long-term, strategic vision of seven to eight years." He does not hesitate to assess the prestige of this brand: "it is the best financial partner to continue our expansion in the Caribbean and Central America, which will accompany us in our projects."
In the bankers' analysis, the fact that the Dominican group is constructing its future vision based on 50 years of history of continuous growth and diversification was an important consideration and, as its Executive President says, "we have the requirement to face the changes that come on a global level, both in the social and in business; It is time to accelerate all the projects that we have been walking slowly and adopt a platform of innovation that allows us to face the new challenges that will come in the business world.
One of these challenges is technological modernization. It is one of the items to which large corporations in the world reserve large proportions of their budgets, because with obsolete machinery and equipment it is impossible to sustain competition. Diesco knows this paradigm of the world trade: "In our business you cannot compete without the latest technology. That's why the equipment we use in the Dominican Republic and Puerto Rico are the same as the large companies operating in our sector in other parts of the world."
But it's not enough. In addition to technology, the entire business structure must be constantly thinking about innovation. "But not only innovate in products, but we must be attentive to changes in the trends of society in all fields. Not long ago we did not imagine cars without drivers, but they exist already. That is an example, but many more changes will come."
Innovation is an obligation self-imposed by the Group, whose daily life depends on a team that exceeds one thousand employees. Its current structure includes four business areas: packaging, non-alcoholic beverages, projects and capital.
The first includes Polyplas and Termopac, producers of packaging for groceries and personal care goods and disposable containers. The beverage unit is supported by Pac Tech International, a Puerto Rico-based company that manufactures plastic packaging and containers, and water bottling and distribution.
In the area of projects, the base is Interra, dedicated to the financing and development of real estate. The fourth unit, investment services, is supported by the work of the investment fund manager Advanced Asset Management (AAM) and the trustee Advanced Trustee Services.
Any observer of Diesco's business would say that there is no synergy between the plastic industry and a real estate company. "We had to diversify the Group's base of operations," says Diez. And that diversification includes the administrator and the fiduciary: "We see a huge world there, because AAM is focusing on access to capital for development, a field in which we are back in the country; and the fiduciary manages many of the real estate operations in which we are, as well as entering into the field of public offering trusts”.
All areas will receive a catapult push derived from the Goldman Sachs operation. If the Group is already regional, due to its production in the Dominican Republic and Puerto Rico, its aim is to become a multi-latin, for which it already has the knowledge base of 25 markets to which it exports. Its largest buyers are in Puerto Rico, Haiti, Jamaica and the USA. And its stellar export goods, in which its competitiveness is proven, are plastic lines and food containers.
Goldman Sachs is the fifth largest us bank in USA and on its shoulders has a history of 148 years
Reaching so many destinations is a major brand achievement if you consider that in some it competes with domestic producers (which happens in markets like Jamaica and USA) and in others, with the strongest multinationals in the sector: "there are many competitors in Latin America and with a wide variety of products, but it is difficult to find a company that manages the entire Diesco portfolio”.
The Feller Rate risk classifier considers it highly competitive in this area: "With its three manufacturing plants, the group brings together the largest companies in the manufacture of packaging, disposable and plastic materials in the Caribbean and Central America, focusing on the creation of comprehensive solutions for all packaging needs and disposable plastic products".
For Diez, a market in which the Group has to look for a positioning niche is the Cuban, whose proximity makes it the most natural for a Dominican industry. But that step will happen, he predicted, "when that country is ready and has a more organized legal system."
Positioning in its industrial lines is a good reference, in view of the projects that will be undertaken in the areas of plastic packaging and beverages, precisely the first two lines in its expansion program. Diez recalls that "in the field of non-alcoholic beverages there is still room for growth, because the world is looking for healthier drinks every day."
There are confidentiality conditions involved in the financial agreement, which prevent the disclosure of specific data on such projects, but what is anticipative is that they will diversify the industrial portfolio, which suppose a venture into new subsectors.
But there are more open possibilities, as anticipated by the CEO, supported by Goldman Sachs' funding capabilities: "We can engage in larger operations, such as buying companies, that allow us to develop faster." By playing in that scenario of possible acquisitions, the picture is not limited to the Dominican Republic, because, he insists, "we see ourselves as a potential multilatina".
And a multilatina with possibilities of multisectorial presence, since the other areas of the conglomerate will also expand: "Advanced will become an investment arm, which will allow us to have the financial sophistication to carry out the transactions we execute".
If Diesco's plans are long term, the structure of the Group will be different within a decade. To imagine then the conglomerate he leads, is for Diez, more than a futuristic exercise, the reaffirmation of the mission to which he will devote all his efforts: "in ten years I would like to see the Group as a leader creating opportunities and positive impact. That we have been a great developer and entrepreneurial engine, that we are a great catalyst for opportunities and that we can say: 'Diesco is a pioneer of innovation and transformation”.
The companies that make up the Diesco Group
It has over 40 years offering to the market its line of plastic containers for the edible, personal care and lubricants sectors.
It focuses on the manufacturing and distribution of a wide variety of disposable containers, with exports to many countries.
It is the water bottling and distributor company that also manufactures and distributes plastics in Puerto Rico.
In 2012 Diesco acquires all of Cristalia Premium Water, from Puerto Rico, strengthening its leadership in non-alcoholic beverages in Puerto Rico.
Company dedicated to the development of real estate projects, which includes its management and commercialization.
ADVANCED TRUSTEE SERVICES
It is the fiduciary company of the group, which manages the financial structure of real estate projects and will launch public offering trusts.
ADVANCED ASSET MANAGEMENT
Investment fund management company that has already approved its first fund for companies development.
Goldman Sachs, legendary brand
Headquartered in New York and branch offices in major global financial centers, Goldman Sachs Group, Inc. is a leading name in the US financial arena.
It is a brand with an age of 148 years, linked to investment banking services, and whose portfolio of services includes services to institutional clients, management and investment programs and loans.
In terms of investment banking, it is a consultant in mergers and acquisitions, restructuring, risk management, debt placements and public offerings. For institutional clients, it carries out fixed and variable income transactions, and operations with currencies, commodities, options and futures.
Its financial management services encompass assets of any type, through investment funds, portfolio management and brokerage services, as well as wealth advice. Special investment and loan programs are structured over the long term, comprising debt securities and loans.
Goldman Sachs' client list ranges from governments to large financial institutions and companies from five continents, as well as billionaires from around the world, for whom special investment products and wealth management are developed.
Goldman Sachs is promoted as the firm that has the most skilled employees in the financial world. Through their offices they have passed personalities who later have reached high positions in central banks and in the governments of their countries. It is traditional that the US federal administration recruits its top executives.
Although in his campaign, President Donald Trump showed little affinity with firms such as Goldman Sachs, his cabinet also incorporates former employees of such an institution, such as White House Economic Council chief Gary Cohn, who was number two in the structure of Goldman Sachs, Treasury Secretary, Steven Mnuchin, who worked there for 17 years, and National Security Council member Steve Bannon. In 2016, Goldman Sachs revenues reached $30.6 billion, down 9 percent year-on-year, but in contrast, profits grew 22 percent to $7.4 billion.
The largest bank in the US by assets, is JPMorgan Chase. Goldman Sachs Group is the fifth and preceded by giants with more than a trillion dollars in assets, such as Bank of America, Citigroup and Wells Fargo.
- At Diesco we have a very good working group and two very important values: passion and humility. My work is very enriching, because it keeps me always thinking on ideas and I'm constantly learning.
- Today, no group can develop without thinking about its social and environmental environment. In the past, many business owners said they had higher costs because they had to meet environmental issues. That is no longer true. For us, it is not a cost: social and environmental is an integral part of our work.
- You have to want to do things right, have the courage to do them well and work with people who have done a lot. You have to want to do more with what you have.
- Managing a guild is not easy, because it is not easy to agree to the entire business sector, but what stands out is that the vast majority of the private sector wants a new country.
- There is, fairly, a worldwide concern about the impact of plastic. But much progress has been made in this field, for example, with lighter packaging. A plastic bottle today weighs a third of what it weighed five years ago.
- Exporting to the larger markets of Latin America, such as Mexico and Brazil, is a challenge because these countries have very different conditions and very large comparative advantages; For example, they do not have to pay the costly freights that we have here and do not suffer from the problems of power supply that Dominican companies face.
- We will continue to be linked to Villas Agrícolas, an area of Santo Domingo that is an integral part of our history and has always been a support for our work.
- Guild work is very important. I served ten years to my country. The issue that remained pending at CONEP, and what I would have liked to see realized, is that of a structural labor reform.
- Dominican companies must continue to be involved in union work. We are pleased that Alvaro Sousa is the president of the Association of Exporters. He did a great job opening markets for Diesco, and with that experience can contribute much to the sector.