Even the bad times are good for the private equity star, writes Douglas Friedli.
It’s six o’clock on a Thursday
evening and the Hilton’s Steam Bar
in central Cardiff is full of laughing,
drinking punters. Jon Moulton takes
in the scene, but he’s not fooled into
thinking the buzz is a sign of a healthy
economy.
“Down here there is a tremendous dependence on the public sector,” he tells Insider. “Even on the most optimistic basis, I can’t see any way through that. Wales needs a bigger private sector.”
Regarded by many as a private equity visionary, Moulton is not afraid to speak his mind. Right now he’s preparing to give the politicians both barrels at a dinner hosted by Lloyds TSB Corporate Markets.
He’s not impressed with the Assembly Government’s economic strategy, which he thinks is too focused on support rather than development: “There’s far too many penny packet investments and not enough concentration. It would be much better to back a couple of good business areas.”
His own recipe is to make Wales an attractive place to work. “You can’t do much about some regulations but you can do things about education, and you can make it a good place for professionals to work in.”
The message is downbeat, but it’s delivered with a cheery smile, a comedian’s timing and the occasional political wisecrack. Talking about where companies go wrong, he says: “People make every possible mistake. They try to keep hopeless products and services going too long. It’s like trying to win in Afghanistan.”
He pulls out a graph that shows the proportion of companies going bust per year after the last recession, at 2.6 per cent, and right now, at 0.8 per cent. So where are we heading? He draws a mark somewhere around five per cent. Ouch.
There’s a reason for his smile. Moulton recently set up Better Capital, a turnaround investment fund, and failing companies will ensure a steady flow of business. Better Capital has just bought Reader’s Digest, the magazine publisher, and Moulton is studying ideas for how to make the most of this perhaps tired brand.
“It’s easy to make it viable – take the pensions and the costs out. Making it really thrive, that’s the challenge.”
As a turnaround specialist, he’s in a good position to spot common corporate failings. Weak management and poor financial control come near the top of the list. “Chief executives who don’t know the numbers are pretty well universally a disaster.” And, he adds with a twinkle: “Chief executives who have been married three times or more are normally a complete failure. They probably spend all day thinking about something else.”
He advises companies not to be too optimistic with investment plans, adding: “If you have debt, try to fix the interest rate. Sooner or later interest rates will let rip. And if you depend on public sector work, try to make sure you have no surplus cost and maximum variability in your business.”
Most of his political digs are directed at Gordon Brown and Alistair Darling – he’s no lover of the Tories either. Only Liberal Democrat finance spokesman Vince Cable escapes the barbs.
A key figure for him is that the UK government is spending £1.36 for every £1 it receives. “It’s immoral – who’s going to pay for it?” Our children and their children, comes the answer. But he’s not tempted to test his turnaround skills on UK plc. “No, it’s definitely too much for me. My ego’s not that big.”
Earlier in the day he gave a tough assessment of market conditions at a conference hosted by Gambit Corporate Finance. But he identifies a few ways out for business, including the stock market, which can pull money into a company, preserve the value of an investment and allow hope for better days.
And over the next five to ten years, he predicts the private equity industry will become smaller: “It will have reinvented itself into more of a management type business than a financial deal-doing business.”
Also in: May 2010
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