Interview: Jon Moulton

Published on Friday 3 December 2010 20:33

JON Moulton and his team have had plenty to ponder this past year, as tough economic times have forced an increasing number of firms into the hunt for fresh funding to keep their businesses afloat.

It's bread and butter for Better Capital, the turnaround house set up last year which specialises in overhauling distressed UK companies.

Founder Moulton, who has built a personal fortune during his 30 years in private equity, is still enthralled by what he describes as the "quite odd" business of investing in ailing firms.

"It is great fun," he says. "A lot of the time in business you take actions and are not really sure what the long-term outcome might be.

"In turnarounds, you take dramatic actions that can have an immediate effect, and when the impact is positive that is extremely satisfying."

Tough times have unleashed a torrent of potential deals, but Moulton would still prefer more decisive action to hasten economic recovery. The 60-year-old was a fierce critic of the Labour government's handling of the downturn - his vineyard at the family home in Kent produced "Recession Red" in a swipe at Gordon Brown - and Moulton remains equally outspoken on what he perceives as the coalition's shortcomings.

"The cuts are not deep enough, and they are not fast enough," he says. "That is not a very popular view, but my concern is that we are basically spending our efforts on pain aversion as a method of policy development.

"The UK is by any historic standard over-leveraged and over-spending. The deficit is increasing by 400 million every day, and something has got to be done to stop that."

Moulton rarely shies from controversy, and matter-of-factly offers his unvarnished views when asked for an opinion. He is equally forthright in the investment arena, having shot to notoriety a decade ago when he led Alchemy Partners on an ultimately unsuccessful bid to rescue MG Rover.

• Background: Jon Moulton

Before co-founding Alchemy, much of Moulton's early venture capital career was focused upon leveraged buy-outs. In the years since, he has often criticised the excessive use of borrowed money to finance private equity deals, though he notes that the evaporation of debt markets has, for the moment, effectively corrected this flaw.

Moulton remains a regular fixture on the speaking circuit and, weather permitting, is scheduled to appear tonight at the Premier Series Dinner hosted by Edinburgh Chamber of Commerce. Though he will most likely make the painful case for deeper government spending cuts, he says he is "far from fixed" on what other topics he might cover.

"Events could change any plans I have very rapidly," he says."Anyway, I normally knock these things out on the way to the do."

In the summer of 2007, Moulton and a clutch of other private equity chiefs appeared before the Treasury select committee as part of a government enquiry into the industry. Moulton's testimony included an attack on some private equity firms which, he claimed, were "abusing" a generous tax regime by not paying their fair share.

Later that same year, he accused the accountancy profession of a loss of integrity on due diligence work on private equity buy-outs.

During his 12 years at the helm of Alchemy, the partnership put some 1.8 billion into various investments, including 13 turnaround deals. Moulton's surprise decision to resign in September 2009 followed a disagreement with fellow executives who were no longer interested in revamping ailing firms.

He quickly moved on to set up Better Capital, raising an initial 142m in a December 2009 flotation on the Alternative Investment Market. This was followed by an additional 67m share placing in June of this year, and a move up to the main market.

To date, Better has spent 57.5m on four deals, including the high-profile acquisition of the UK arm of Reader's Digest. Its other portfolio companies include software business Calyx and aerospace components group Garner, which was subsequently bolstered by the bolt-on of RD Precision.

Moulton says all of these are performing at or above expectations, and that further deals will be forthcoming. He adds that he will stick with Better Capital's turnaround remit, even though the broader private equity market is being forced to adapt to some unusual circumstances.

"A very odd phenomenon is that something like over half of all activity in the UK market this year has been private equity selling to private equity," Moulton explains. He says this is driven by the need to invest funds before they expire, as well as the push to generate higher management fees.

For Better, the focus will remain upon firms "where there is a dream to chase". Though many potential deals are coming through the pipeline, few are in a tactical position to flourish going forward.

"We deal with companies in a loss - that is what we do for a living," Moulton says, "but a lot of the companies we look at are just hopeless.

"You have to ask yourself if there is a business there worth saving. Some businesses should fail."