Conservative estimates put the combined personal wealth of the leading venture capital industry players in excess of £100 million. Yet they are not to be found in Who's Who or on any rich-list. How long can they remain anonymous? Richard Rivlin reports.
Venture capitalists are fast becoming the new lions in the corporate jungle. Brand names such as Dunlop and Slazenger, Tetley Tea and Sock Shop have been picked off by a handful of little known firms which have seemingly limitless resources.
When BTR sold its aerospace division it was Doughty Hanson which stumped up the £510 million to win the auction. When Reed Elsevier sold IPC Magazines last year it was Cinven that shelled out £860 million for them. When Pearson sold Madame Tussaud's for £350 million, it was bought by Charterhouse Development Capital.
The stakes are high within London's venture capital village. Investors demand high returns and the pressure is on to deliver. Within this community are a small coterie of key figures who dominate what is the financial theatre of the buy-out market.
The show is not open to the public, the characters cannot be found in Who's Who, they do not appear on any rich-lists and are never profiled in the financial press.
Yet these are the major players in an industry which, according to the British Venture Capital Association, now accounts for half of all mergers and acquisitions (M&A) activity in the UK and provides the source of a third of all flotations.
Step forward Robin Hall, managing director of Cinven, Stephen Curran, executive chairman of Candover, Gordon Bonnyman, managing director of Charterhouse Development Capital, Nigel Doughty, co-founder of Doughty Hanson, Jon Moulton, founder and managing director of Alchemy Partners and Donald Mackenzie, chief executive of CVC Capital Partners.
Each man has an individual strategy but collectively their houses have raised almost £7 billion. This gives them more firepower than Britain's great conglomerates could ever muster. If you have not yet heard of the firms, they will undoubtedly be coming to a business near you very soon. It might even be your own.
Conservative estimates from within the industry put their combined personal wealth in excess of £100 million. It might even be double that. Yet they are not labelled by the press as fat cats every time they successfully complete a deal. You probably would not even recognise them if they walked past you in the street.
Moulton, renowned as the most outspoken of the pack, says: 'The head of a FTSE-100 company may get £1 million a year. The heads of venture capital outfits get a hell of a lot more without any visibility or accountability. As we move from one form of conglomerate to another, the levels of visibility will change.'
The days of venture capitalists maintaining such a low profile are beginning to disappear. As more and more deals are completed by the large venture capital groups, their role in corporate life is becoming impossible to overlook.
James Nelson, a venture capitalist at Foreign & Colonial Ventures, who is also vice chairman of the British Venture Capital Association, defends these companies: 'The mid-to-large size transaction is a very important part of the venture capital industry and it is very important in the areas of wealth creation and job retention. These companies acquire businesses which are being shed by large organisations and give them a life of their own. The role of the venture capitalist is to be a catalyst which assists change in these organisations. They have also created a huge number of jobs.'
Perhaps the greatest indicator of how far the buy-out market has developed comes from a straw poll of the accountants, lawyers and corporate financiers.
Of nine individuals canvassed seven said that if they had their time again they would wish to be venture capitalists.
When the pot of gold is as large as the following six individuals enjoy, trying to buy as cheaply as possible and sell on for the highest figure can be an exhilarating process. I bet the other two wish they could be venture capitalists as well.
Formerly a senior director at Bankers Trust, he backed the ill-fated 1989 investment into the Magnet furniture group, which needed urgent refinancing and resulted in acrimonious court battles. In 1990 Bonnyman moved to Charterhouse, where he has re-invented himself.
He joined Charterhouse during a period of remarkable achievements. Between October 1981 and December 1996 the company managed a rate of return of almost 80% for realised investments. One has to bear in mind that a pension fund investor expects a minimum return of 20% from its exposure to the unquoted market.
The Charterhouse deals are an eclectic mix ranging from sausage-casing manufacturers in Glasgow to supermarket chains in Spain. But the astonishing rate of return owes much to one deal: the purchase of Porterbrook, the train leasing business.
It paid the Government £527 million for the business in 1996 and sold it for £825 million seven months later. It turned its investment of £50 million of equity into more than £330 million, giving it a rate of return of more than 650%.
Bonnyman, a convivial Glaswegian, says: 'Even if you strip out the Porterbrook figures our rate of return would be above 50% for realised investments.' Having suffered at the hands of the press after the Magnet fiasco and having then been built up as a financial messiah after the Porterbrook success, he is extremely wary. He says, 'I hate the Hello-style profiles which are beginning to creep into the industry. There is nothing special about the individuals within the industry or the deals which they have done. We are a bunch of very lucky people who happen to be sitting in the right place at the right time.'
Institutional investors who have backed Bonnyman think differently. One says: 'He has not done anything for 18 months but that is quite smart, given the state of the market. No one involved in Magnet can have avoided the scars, and as we go into a downturn there is no way he is going to back another turkey.'
Other rivals criticise his approach.
One says: 'The team at Charterhouse has persuaded itself that everything is overpriced and has become much less visible. There are always deals to be done, but not everyone is willing to put in the hunting time.'
Bonnyman has little time for the latter view. Last October, Charterhouse successfully completed the acquisition of the Tussaud's group, although a month later it withdrew its bid for the Greenalls' tenanted pub estate.
He challenges suggestions that by failing to complete deals in the recent past he is failing his investors.
'I have been through three cycles and recognise the stations at which you get off before you run out of track. You do not come by hair of my colour by accident.'
What makes Gordon Bonnyman, the head of Charterhouse Development Capital, such an interesting individual is his ability to survive and prosper during the good and the bad.
Stephen Curran was made executive director of Candover less than a year ago. He is one of the founding fathers of Britain's private equity community.
Tall, sleek with a mane of hair which one adviser described as having Tarzanesque proportions, he dresses in a traditionally English manner.
His longevity and performance, which includes running Britain's best performing investment trust bar none, assures him of his position in this select band.
One leading industry figure, who has fought many auction battles against Curran, says: 'He comes across as very smooth but he is razor sharp. His former boss, Roger Brooke, used to bring in the business but would then pass it on to Curran who is exceptional when it comes to the details.
'Stephen Curran is no romancer of people and he is a technocrat but you cannot argue with his track record. If you have not been found out after more than 17 years, you must be pretty special.'
Curran has never forgotten how to do a deal. He led the buy-outs of Caradon building products group, Hays support services and Jarvis hotels. The highest profile deal was the buy-out of Eversholt Holdings in December 1995 for £580 million. The train leasing company was sold only 13 months later for £726.5 million which led the Labour Party to call for an investigation into the cheap sale of assets.
One adviser, who has been involved in numerous deals with Curran, says: 'He is completely unflappable and has managed to work quietly, away from the glare of publicity for nigh on 20 years, building Candover from a small entity into a superleague player.'
The same adviser tells the tale of one major deal which was hanging on a knife-edge. An emergency meeting was called with the lawyers, bankers and advisers to decide whether to pursue a purchase. The tense room awaited the signal from Curran which would indicate whether to proceed or not.
Curran walked out of the room and the advisers thought their fees had gone with him. He returned clutching a water gun and began to feed two plants in deadly earnest. He then passed the gun to a merchant banker and nodded towards a third plant. The adviser did the job and went on to execute the deal.
Alchemy, the newest house in the game, is headed by one of the oldest hands around. Jon Moulton who once claimed in the Sunday Telegraph to have made 110 millionaires, is the highest-profile venture capitalist in Britain. He left Citicorp Venture Capital to set up Schroder Ventures in 1985 but resigned in 1993 after the board refused to re-negotiate the terms on offer to the private equity division. He spent three years at Apax before leaving to set up Alchemy Partners in January 1997.
In little more than 18 months he has captured the imagination of an industry by completing a string of deals which includes taking AG Stanley and the Fads and Homestyle DIY business from Boots for £1. Wellman, the specialist engineering group, was taken private in a £73 million deal as was Instem, the electronics manufacturer.
He says: 'We want to be involved in smaller, more entrepreneurial, faster moving operations. The market for normal deals has become rather tight and it is no longer any fun to play in them. I'm very much against the idea of taking part in auctions.'
One senior venture capitalist says: 'Moulton is the real worker bee of the bunch and the one I would give my money to. He could find value in your dustbin without you realising. He has stayed hungry and sees deals others just don't see. He can be quite unpleasant but he is a thoroughbred.'
One former colleague of Moulton says: 'Some people thinks he is totally mad while others subscribe to the view that he is exceptionally smart.
The truth lies somewhere in the middle but he has become incredibly prolific at Alchemy.
God knows what drives him as he does not need to work. Maybe he is a deal junkie.'
Moulton, who eschews all symbols of wealth by choosing to drive a Mini, says: 'I really do enjoy the work and love being surrounded by bright people. Even on holiday, if I have not done two hours on the phone in the morning, I get a bit twitchy.
'My best deal was the £70 million buy-out of Parker in 1986. It had losses of £20 million when we bought it and profits of £40 million. Our rate of return was 72% and the total proceeds in excess of £500 million.'
He is equally frank about his worst deal - 'the £70 million buy-out of the Glass Glover fruit and vegetables distributor. After we bought it we discovered there had been false accounting, suppression of debt levels. We sold it to Unigate for £45 million.'
Such frankness is anathema to Nigel Doughty who is seen as the king of the Continental buy-out, along with his partner, Dick Hanson. They worked together in the structured finance division of Standard Chartered in the early 1980s. Doughty progressed to launching his own business, CWB Capital Partners, which was jointly owned by Standard Chartered and Westdeutsche Landesbank. Like the managers of the businesses he bought out, Doughty had become tired of having to answer to senior bankers and in 1995 set up under his own name.
In just two years, Doughty's group, which has offices in Frankfurt, Stockholm, Milan, Chicago and Warsaw as well as Pall Mall, London, has succeeded in reaching the top of the Acquisitions Monthly 1997 league table for Continental European deals. It completed five, investing a total of £306 million in equity including Ilford Photographic and Tag Heuer, the watchmaker.
One rival venture capitalist says: 'He is absolutely charming. You do not raise a $2.5 billion fund (which they did in 1997) without being a charmer. Like anyone of any substance they have made mistakes but Doughty has retained a steely ambition for his group: to become Europe's pre-eminent private equity house. A mixture of charm and ambition is no bad thing.'
Insiders who work closely with Doughty are under no illusions that the aim is to be the biggest and the best. One says: 'Every time we go out fundraising we want the biggest pot and we want to do the best deals. We want to be recognised as the innovators within the industry and to have the best record.'
Hanson retains a soft underbelly beneath a tough exterior. A keen fan of Nottingham Forest football club, he was part of a consortia which failed to win control of the club in 1997. Had he been successful, he would not have been able to maintain such a low profile. No national newspaper has ever published a photo of Hanson who is against all coverage and wants his investments to do the talking.
No one could accuse CVC of being reticent about completing deals at this stage in the cycle. Its offices in Covent Garden are filled with activity. Having raised a £1.8 billion fund to invest in global deals, Donald Mackenzie, the chief executive, is hungry.
Although Mike Smith is chairman and retains day-to-day control, it is Mackenzie who is stamping his authority across the group. As a family man he drives a Range Rover and has two young children. But he is also the young turk of this group and is destined for greatness if he can keep his head in the downturn.
Having a brother working for Charterhouse ensures that Mackenzie doesn't lose his competitive edge. He is also one of the many Scots who have played a central role in British venture capital in recent times.
Mackenzie began his career at 3i, the UK's biggest venture capital group.
But he says: 'I left because they would not follow my investment judgment.
I became frustrated and moved on.' He joined Citicorp, the forerunner to CVC, in 1988, and has not looked back.
'The first deal I did was to buy what became Dennis, the engineering group, for £23.5 million. Today it is subject to bids of more than £230 million and has gone on to grow organically.' His other deals include backing the Hamleys toy store group but his favourite remains the buy-out of Sylvania Lighting in 1992.
'We put in £10 million equity on a £100 million deal and when we exited we were able to get a return of more than 10 times our money.' His hunger to succeed has not deserted him and he has been the moving force behind CVC's transformation from being forever the bridesmaid to coming second to the likes of Cinven.
During 1998 CVC completed eight deals including the £150 million purchase of Bols liquors, the £145 million deal to take the Brunner Mond engineering group private, and it led the £650 million buy-out of Formica from BTR.
Even though CVC's track record of a 48% return is impressive, the figure since it completed its own buy-out in 1993, remains a mystery.
One of the other five venture capitalists featured says: 'Donald is not part of our generation. He is one of a new breed. He is exceptionally talented and very wealthy. His real test will come when Mike Smith leaves and he has to take control of the group's overall strategy. He runs a very hard ship but is winning the deals. Only when they try and exit the deals will we actually see how good he is.'
Perhaps the best strategist of these six is Robin Hall of Cinven. Cinven's deal to pay £860 million for IPC Magazines was the most talked about venture capital deal of 1998.
No one could ignore Cinven even if they wanted to. Its regular Cinven Challenge logic problems invade the front page of the Financial Times and frustrate many a City commuter.
Hall ceased to be involved in the intricacies of the deals long ago but still has a grip and has the power of veto on every investment decision taken, thus earning his spot in this collective of the industry players.
He qualified as a chartered accountant in 1972 but soon decided mere number-crunching was not for him. He moved into the rapidly developing computer and electronics sector before joining Cinven in 1981.
In 17 years he has successfully completed Cinven's own buy-out from the British Coal pension funds, shifted its focus from mid-market deals to the larger buy-out market and maintained his power base at the modern offices in Old Broad Street in the heart of the City of London.
One of Cinven's advisers says: 'Robin Hall is the mastermind behind Cinven. He is cerebral without being articulate. He shapes the whole business and no one says boo without his say-so. He spends a lot of time thinking about the future direction of the group and is determined to continue pushing forward into the next century.'
Accused by some of being arrogant, Cinven's brochures make clear its aim to be 'a market leader among venture capital companies', filled with 'exceptional people' targeting the British market. Its distinctive navy-blue background and white lettering has almost created a brand where none existed before. This is an attempt to reduce any cult of personality and focus on being Team Cinven. It's clever marketing but everyone knows who is in charge.
Richard Rivlin writes for the Sunday Telegraph
SIX OF THE BEST
House Timescale Rate of return %
Charterhouse Oct '81-Dec '96 78
Doughty-Hanson May '87-March '97 59
CVC 1981-Sept '97 48
Candover Sept '80-March '97 42
Cinven March '86-March '96 30
Alchemy yet to realise investments
SOURCE: the funding documents produced by each house.