It would be fair to say that Jon Moulton may have had a slightly unfair advantage when he relinquished the reins at Alchemy Partners and decided to launch his own ‘better fund’.
Starting as he did in the depths of the recession, when other funds were finding it increasingly hard to exit investments and raise new money, the industry veteran of 30 years still had his hands full trying to make a success of it.
Two years later and his new firm, Better Capital, which specialises in buying and restructuring British businesses, has embarked on 12 turnarounds. Moulton says that all these companies are now profitable with no bank debt and adds drily, ‘If I had made that boast two years earlier I would have been asking for it.’
Meeting as we do on his home patch in Leicester Square, Moulton appears at ease with his surroundings, immersed in the commotion of the theatre district. Feet up on the chair next to him, and requisite cup of black tea in one hand, he is quick to justify his decision to leave Alchemy behind.
‘We are doing what I wanted to do in my previous shop, which is just turnarounds. In an economy that is not going to be fast-moving in the next decade, and might get a hell of a lot worse than that as well, turnarounds give you an opportunity to make money in a very bad market.’
Certainly the manner of his leaving set tongues wagging. Moulton made it absolutely clear in a letter to investors that he had lost confidence in Dominic Slade, now the firm’s managing partner, citing ‘continuing concerns as to his performance’ and adding that he was unable to endorse his as his successor.
But there was nothing abrupt about Moulton’s decision to quit. He says that he had been disillusioned for about 18 months, during which time Alchemy’s productivity was diminishing fairly steadily, and that the end was ‘rather inevitable’.
‘It had to be done,’ he adds, ‘At the end of the day, the bloody thing was hopeless.’
It was back in 2000 that Moulton announced himself in a big way to the UK public through the ultimately unsuccessful attempt to prise failing car business MG Rover away from its German owner, BMW.
The car manufacturer was eventually sold to the Phoenix Consortium, who ended up ‘making such a mess of it’, he says.
Before that doomed bid, Moulton found his way into the venture capital world via a chemistry degree at Lancaster University and the start of a career in accountancy. It was then that he really got a taste for business, and insolvency in particular, spurred on by the freedom offered by the receivership laws of the time.
‘You had unlimited powers and no liability – a great system for a youngster learning how to do things,’ he says.
‘I was negotiating things that were way beyond what I should have been doing at that age and state: running businesses, firing people, selling factories and stock. It was great fun.’
One of the refreshing things about Moulton is that he doesn’t court popularity, and isn’t afraid to say things that would probably get him fired if he was in politics. For instance, he believes that not enough businesses are going bust in the UK at the moment. That limits the opportunities for a turnaround investor such as Better Capital, but he also maintains that it’s bad news for the economy as a whole.
‘We have companies in the UK now that are staggering along, consuming assets and people that might be better deployed into some other activity,’ he argues, adding that the languishing states of Greece, Portugal and Ireland have the lowest insolvency rates in Europe.
The building blocks of a turnaround
Despite these frustrations, Better Capital has still found plenty of investments since it was formed two years ago. The fund has invested in the aerospace, publishing, ICT and tooling sectors, in what Moulton describes as simple turnarounds.
‘Nothing we have done so far has included really complicated stuff, such as changing core products, distribution or innovative new ideas,’ he explains.
‘It is about optimisation of costs and cutting away unnecessaries rather than relying on the sexier part of managing in order to get things moving forward.’
The most rewarding part of the process, he says, comes after two months, when the business has been brought back to profit: it is here where you get a glimpse of what might be a softer underbelly.
‘You meet a bunch of people who have gone from being battered, lacking confidence and worried to suddenly having their heads up and being productive, energetic and motivated. It really is quite a dramatic change.’
Grilled on what his most satisfying investment of the past two years has been, Moulton grits his teeth and compares the question to having to pick his favourite child.
The high-paced style of turnaround investments seems to suit Moulton, who says that after consecutive days (and nights) spent hammering out transaction details, the close of a deal makes him feel ‘really pretty good’.
The search for investable businesses takes Moulton and his team to all corners of the UK, a feat, he says, that is made easier by his eligibility for a senior rail card.
‘We do a tremendous amount of travelling. The most prosperous part of the UK is within the M25, an area with a relatively low density of turnaround opportunities.
‘There are many more in places such as Birmingham, Leeds, Edinburgh, Belfast and Dublin, so that is where we go.’
In any given quarter, Moulton trawls the country conducting 150 meetings and seeing over 1,000 people in the process as he looks to sift through the ‘bad management groups and second-rate advisers’.
The most developed investment in Better Capital’s portfolio is, not surprisingly, the one that it has had on its books the longest. Struggling aerospace business Gardner was the first piece of the ‘better investment’ puzzle and has gone on to improve its revenues from £40 million to £70 million, and turn losses of £2 million into profits of £9 million.
Adopting his philosophy of keeping it simple meant that new equipment and a factory were bought using fresh equity, so that the ailing business was not exposed to any further debt.
Moulton’s advice to struggling businesses is straightforward: if you have played out your own skill base, add to it. ‘None of us likes to accept that what we are doing isn’t working, but you have to do that from time to time, and when people get used to the idea of doing it then the process can be quite cleansing and relieving.
‘A little kick on the tiller a year earlier might have achieved much the same result as the kind of stuff that we have to do.’
Round two – Better Capital Fund II
Better Capital is now fresh off the back of a second fundraising, Better Capital Fund II, which will look to plug the gap that Moulton sees emerging as banks withdraw support from ailing companies.
While raising £158 million in the current moribund IPO market was no mean feat, the company had aimed for £200 million.
It was a very different experience from the first Better Capital fund, which hit its £210 million target with ease. Moulton remarks that going back to investors after two years spent ‘demonstrating quite a lot of value generation’ was a tough gig and the hardest of his career.
‘You would have thought that the sales pitch would be very easy, but the market has been just terrible. It was very hard raising money this time, even with a much better story than when we started out with just me, one guy and a temporary secretary.’
Since securing the £158 million through first placings, the fund has only been able to add an additional £12 million to the coffers. Alongside an investment of £50 million from Phones4u founder John Caudwell, Moulton has committed £30 million of his own wealth to the acquisition vehicle.
Away from Better Capital, Moulton has caught the green bug and become involved with newly formed sustainable infrastructure and clean energy fund Greensphere. It’s an area that Moulton ‘expects to make money out of’, with Greensphere set to make its first investment sometime in the spring.
The recent government announcement that it is to halve the feed-in tariff (FIT) subsidies for renewable energy five months earlier than expected has created a situation that Moulton describes as ‘a bit of a shambles’, with many businesses and financiers scaling back their investment in the sector as a result. But it is not likely to affect Greensphere’s activity, he adds.
Moulton’s relationship with the government hasn’t always been trouble-free. He was swept into the periphery of a recent scandal following an apparently innocuous charity donation he made via former defence secretary Liam Fox. It later emerged that money from the charity had been used to fund the travels of Fox’s friend Adam Werritty around the globe.
His views on the current government are simple. ‘It probably helps that I start off with lower expectations, and I think those expectations are justified most of the time.
‘I’m actually in quite an odd place in that I wish they had cut harder when they first came to power. Now we are in a really bad place where the economy is very weak, but until such time that we eventually get income to equal expenditure things are likely to be unstable and could lurch even worse.’
When he does get to spend some time away from his new venture, Moulton says he likes to keep himself busy by walking with his wife. And with houses in Kent, Belgravia, France and Guernsey, he has more than his fair share of escape options.
His French property has its own vineyard producing varieties of wine including Moulton’s Recession Red, which appears to bring his economic approach and attitude to the palate of discerning drinkers. He may have a taste for the finer things in life – but he reveals that expensive hobbies such as boats, helicopters and mistresses are not really within his remit.
Jon Moulton’s Vital statistics
Date of birth: 1950
Place of birth: Stoke-on-Trent
Family: Married, two children
Best business decision: Leaving Alchemy Partners behind and starting Better Capital