Much to play for

How should a private equity firm market itself to compete for global capital without compromising the understated professionalism ingrained in its British roots? That’s one of the many business development issues raised by Cinven managing partner Hugh Langmuir during a lengthy discussion in September, held in the firm’s vast boardroom, overlooking London’s St. Paul’s Cathedral.

“Europeans generally don’t shout from the rooftops,” Langmuir says with a wry grin, then proffers a bit of a disclaimer – prompting laughter all around – so as not to risk offending the American journalist sitting across from him. “But we’re dealing in a world where people are putting themselves forward very aggressively and they are competing against us.”

Cinven is arguably one of the most low key, large cap operators in private equity. It’s difficult to find much written about the 33-year-old firm aside from M&A and fundraising stories, and even then its executives are rarely found offering up sound bytes. Langmuir says the firm’s tendency is not towards secrecy as some assume – he points to an extensive website and detailed annual reviews as evidence to the contrary – but rather a preference to avoid the spotlight, or at least carefully choose when to enter it.

Langmuir: leading Cinven's next generation

As one fund of funds investor notes, Cinven “is not one of the showy, high profile firms, but sensible, thoughtful and very professional”.

“Professional” is a word that comes up repeatedly when Cinven executives – from junior to senior level – are asked to describe the firm, as does “experienced”, and “decent”. You may struggle to find an employee who doesn’t praise their colleagues and describe the office culture as collegiate and collaborative. But you’re equally hard pressed to uncover specific examples or anecdotes that afford the firm a tangible persona.

One long-time market observer says this latter point should be considered positive, as it signals Cinven is positioned to thrive throughout many different generations of leadership. 55-year-old Langmuir says that concept was one of the main objectives of the founding partner group.

“All of us were motivated by the assurance that the sum of the parts is greater than the individual,” he says. “We were all inspired by the idea that Cinven should be a business that carries forward after us, after we’ve left; that there is no legacy ownership and that the leadership of the firm should belong with the people that make the contribution and push things forward and generate the returns.”


The leadership came to rest with Langmuir around July of last year amid a series of changes that effectively cleared the way for the next generation.

It was announced that Langmuir would replace Robin Hall, who had been at the firm’s helm since 1988. Jonathan Clarke, an 18-year veteran and partner with joint responsibility for Cinven’s fundraising efforts, retired, as did Yagnish Chotai, a deal-maker involved in numerous transactions such as Gondola – the restaurant group that owns Pizza Express and Zizzi brands. The retirement of Clarke and Chotai and the winding down of Hall’s management role followed the 2008 retirement of Dick Munton, one of the firm’s founding partners and part of the UK buyout scene for almost 30 years.

Between 2007 and 2009, the firm also hired and promoted seven new partners. And though a new managing partner was not agreed on and announced until 2009, Langmuir says Hall started the partners thinking about the issue as early as 2006.

“We said, ‘Okay, we know this is going to happen; how do we achieve an outcome that maintains the stability of the firm and ensures continuity with the change? How can we avoid internal competition, losing valuable partners because for some reason they feel they didn’t get a fair shake of the stick?’”

Ultimately the process culminated in the partner group democratically selecting Langmuir. “It was like the British constitution, the solution emerged in a fairly uncontroversial and completely consensual way.”

Langmuir’s background – he is a self-proclaimed “deal guy” with global perspective – is a large part of what caused his colleagues to make him managing partner. He grew up in a small Scottish village until the age of 10, but went on to spend time living and or studying in Canada, Britain and the US. He joined Cinven in 1991 – before which he worked for Bain & Co and Citi in London and Paris – and went on to run the Paris office.

Along the way, he was involved in the transaction that “put us on the path to being a pan-European player”, the 725 million acquisition of hospital chain Générale de Santé in 1997, which generated a 28 percent internal rate of return and 3x return multiple upon final exit.

Langmuir also led the €4.4 billion deal for travel distribution services company Amadeus in 2005, a take-private done alongside BC Partners. The company raised more than €1.4 billion in April this year with an initial public offering on the Spanish stock exchange, giving Cinven a partial exit worth 2.5x (it retains a 17 percent stake, which is 85 percent of its original holding), according to Cinven’s website. The IPO was lauded not just for its size, which Langmuir believes will be the firm’s largest ever gain, but because “it was a great expression of confidence in the quality of the business by public institutions at a time when the markets were extremely difficult. I think it’s a demonstration to our customers that we can achieve, even in today’s markets, outstanding returns in private equity.”

It’s not just the rainmaker quality that made Langmuir a candidate to run Cinven. “I’ve always been interested in the business as a whole; thoughtful about how it should evolve and interested in how the private equity industry has shaped up,” he says. “I was probably more involved than some of my colleagues in some of these key decisions: should we go to Europe? How should we invest in Europe? Where should we have offices?”

Europe's got a longer-term challenge on growth to meet, as it's got a slow recovery rate.

Hugh Langmuir

He was also involved in the firm’s decision to launch a Hong Kong office two years ago to help European portfolio companies expand into Asia as well as reduce costs by sourcing certain products in China. “What that is helping us do is deliver emerging market growth channels to European companies,” he explains. “Europe’s got a longer-term challenge on growth to meet, as it’s got a slow recovery rate.”


Right person for the job or not, taking over the management of a buyout firm in 2009 was a complex and challenging move. Uncertainty around the global economy, questions surrounding the viability of buyouts in a post-global financial crisis world and fallout from portfolio companies impacted by the crisis all contributed to the negative psychology of the time.

“This was coinciding with a lot of the more lurid headlines on the death of private equity,” says Langmuir, who recalls receiving ominous cautionary emails from a handful of acquaintances questioning his decision.

 “I am very comfortable in having picked up the challenge,” he says emphatically, laughing when asked if he thought about moving to a tropical island instead. “I intend to finish the job for as long as my colleagues want me to do that. And I do feel responsible for carrying on the success that Robin’s laid down: the firm is not just a few individuals who are in it for the quick buck and then the whole thing disappears; it’s been going a long time, these are deep roots that go back to the British Coal heritage [one of the three UK pensions on whose behalf Cinven originally invested]. We’ve employed a very interesting, diverse, talented group of people, all of whose careers depend upon the success of the firm.”

Remaining successful will not be easy. Most private equity firms have been taking write-downs in portfolios and nearly all of them have had some investments go south, including Cinven. One of the more public problem assets was UK gaming business Gala Coral, a co-investment with Candover Partners and Permira. A newly passed smoking ban affecting Gala’s businesses such as bingo parlours, coupled with tempered spending because of the economic downturn hit the company hard. After protracted negotiations to restructure a £2.6 billion debt load, the three firms walked away from the investment with just £10 million each. The three groups had in total staked £1.2 billion in equity on the deal. Mezzanine lenders to the group, including Apollo Management, Cerberus Capital Management and Park Square Capital – some of whom only bought into the debt once it became distressed – emerged from the restructuring process as the new owners.

“We very much regret the final outcome,” says Langmuir. “I think we did our best to avert that. It was certainly one of the most difficult cases to secure the restructuring and to trade it through.

We did get some recovery, but at the end of the day there were a number of extraneous factors that really overwhelmed it – particularly the change in anti-smoking laws, which just came at us in a whirlwind. It was very difficult to resist that and time will tell whether the current owners will do any better.”


Langmuir then offers up what was clearly another painful loss for the firm: USP hospitals in Spain. “We also had a hospital deal in Spain which we couldn’t fix, again I think largely because of macro factors. At that stage there was no talk about sovereign debt issues. Nobody questioned the ability of governments to honour their debts, but we found the Spanish government moved to slow down their payment cycle and we were faced with a very different set of business issues than we expected from the time of the investment in a sector where we are very much expert. In fact, the deal I’ve talked about as sort of my first love for transactions – Générale de Santé – was an acute care hospital. We know [the sector] like the back of our hand. We’ve also got one of the largest [hospital] groups in the UK.”

The inability to fix USP was difficult to accept, he says. “But ultimately our job is to ensure that our investors get the best possible returns, so we work very hard for recovery. But what we don’t do is put more money into situations where we think ultimately the situation is not redeemable.”

The good news, he says, is that the problem children “are not a large extended family of problem children. It is actually a very little number compared to the total portfolio and history.”

Looking ahead, Langmuir insists the firm is strong enough to absorb the recent body blows. “I think we’re in pretty good shape compared to some. Some great household names have already fallen by the wayside. As you’d expect in every competitive industry, not everyone comes out a winner and I’m very confident we’ll be on the winners’ podium.”

The confidence comes in part from looking at the current performance of the portfolio. Though Fund IV, which raised €6.5 billion in 2006 and was around 65 percent deployed at press time, hasn’t made any realisations yet, book values are steadily improving and realisations are in the pipeline, Langmuir says. As of June 2010, Fund IV portfolio companies were reporting 7.5 percent profit growth for the past 12 months at constant currency and were being held at nearly 115 percent of cost, pre-FX considerations, compared to 111.3 percent in March and 103.5 percent in December.

Langmuir’s certitude also stems from a recent review of Cinven’s strategy post-financial crisis, which reaffirmed the firm’s focus on European private equity deals.

“Our conviction is that Europe in its entirety is a larger economy than for example the US. It’s got more Fortune 500-sized companies than the US. It is much lower risk today than emerging markets,” he says. “It’s under-penetrated relative to its GDP and it’s got a level of complexity and more market imperfections and inefficiencies because of a series of national markets – and private equity thrives on imperfect markets.”

That isn’t to say that other geographies can’t offer rewarding opportunities, adds Langmuir, but in terms of priorities, European deals sought out by Cinven’s sector teams and local offices will continue to be its main focus.

Its commitment to Europe makes it somewhat unique in that other large-cap, London-based private equity houses have begun targeting other geographies or diversified their product ranges. “It’s hard to say other strategies won’t work,” says Langmuir. “There are some very successful people out there that do things differently. But you need to [choose a strategy that] your own organisation with all its history should aspire to and can deliver.”

Cinven will likely begin marketing next year for a fifth fund, depending on the pace of deployment for Fund IV, which has the ability to invoke a one-year extension to relieve any pressure to invest. “Still having everything to play for in terms of ultimate returns, our primary duty to our investors today is to ensure that we invest the balance of that fund in attractive, well priced opportunities,” Langmuir says.

Contrary to a recent story in a UK tabloid, Cinven has not decided on a target for Fund V. “Because of the extension, because of where we are in the investment pace, I think it’s premature to make that call today,” Langmuir explains.


So, if Cinven’s succession process has gone smoothly and the firm is confident in its ability to continue to deliver solid returns to investors, what keeps its managing partner up at night?

“The issue which I continue think about and analyse is the primary market, the flow of companies to acquire and the stage of the recovery in the M&A cycle,” Langmuir says. “We have made very good money on secondaries, people have made good money out of our secondaries and there’s definitely a place for that. That needs to be part of the market because there are companies that are right for private ownership rather than public.”

We have one economist predicting disaster one week, and another economist the following week saying we're in recovery. 

Hugh Langmuir

But there also need to be primary deals feeding the private equity market through mainstream corporate M&A activity, which still hasn’t quite happened. “What’s holding back activity is confidence, the continued volatility of markets. People are finding it extraordinarily difficult to call. We have one economist predicting disaster one week, and another economist the following week saying we’re in recovery. Who do you believe? You don’t believe either because economists don’t know. They don’t know any better than we do. What is it going to take? Will there be a breakthrough?”

Langmuir believes there will, he says quickly. “I doubt it will be a single event but I think there’s definitely an overdue upswing on the corporate side. I don’t want to be fully committed in Fund IV and out of money when the dam breaks and these opportunities come through.”