Lyndon Lea knows a thing or two about brands. In fact, during the hour he spends talking to Private Equity International about Lion Capital, the consumer-focused buyout firm he co-founded in 2004, Lea mentions the word ‘brand’ more than 50 times.
“We’re passionate about investing in brands about which people are passionate,” Lea says on several occasions during our visit.
If knowledge is evidence of passion, then Lea has it in spades. He knows his portfolio companies inside out, scarcely drawing breath as he jumps from the science of how a ghd hair straightening iron works to the intricacies of fashion retailer AllSaints’ collections. The firm’s London office is a shrine to its brand; expensive art eschewed in favour of advertising posters for Weetabix and Kettle Foods and Jimmy Choo.
Lea was only 34 when he co-founded Lion with Robert Darwent and Neil Richardson, fresh from a spin-out from Hicks Muse Tate & Furst whose European operation Lea had launched alongside John Muse in 1998. Back then the firm was looking to invest across the consumer goods, food and media sectors, but over the course of the three Lion funds this has crystallised into a narrower focus just on brands.
It’s been a busy time, says Lea: “Over the last 11 years, we’ve invested in over 100 different brands, and so the expertise that sits in this firm in terms of how to grow a business or a brand I think is pretty unique in the marketplace. There’s very few firms that have been so focused and dedicated to a brand strategy.”
Lion’s debut fund as an independent entity closed on €820 million in the summer of 2005, a few months after it officially changed its name from Hicks Muse (Europe) to Lion Capital. Despite learning his craft at Glenisla, the erstwhile European affiliate of industry behemoth KKR, Lea is determined to stave off any trappings of institutionalism.
“Our model harks back to the early days of private equity. It’s about shoe leather, getting out there, pounding the streets, meeting people,” Lea says. “It’s an entrepreneurial business as opposed to having 100-plus investment professionals and having a more institutional face on it.”
Although not everything went to plan – high street lingerie retailer La Senza, which Lion acquired in 2006, went into administration in December 2011 citing “trading conditions” – Fund I performed well. Boosted by a 5x return from the partial exit of cereal producer Weetabix in 2012 and the sale of Japanese noodle bar chain wagamama for £215 million, as of June 30, 2014 Fund I was delivering a net return of 1.99x, according to figures from the Oregon Public Employees Retirement Fund.
“The best thing we did is we made a ton of mistakes,” Lea says. “We kept failing. We screwed so many things up, but we were working so hard, we were so close to the coal face, that as soon as we screwed something up we said ‘Oh, that’s a screw up’, so then we screwed something else up. So finally we kind of stumbled our way, failed our way, to success.”
Fund II, a 2007-vintage €2 billion vehicle, bore the brunt of Lion’s hit-and-miss experience of that period. According to the Oregon figures, the fund is currently delivering a 0.78x net return. “Quite candidly, that fund has been a pretty average performer,” Lea confirms, adding that its current position in around the third quartile marks it as “far from being a rousing success”.
As well as belonging to a tough vintage, Lea points to rapid expansion within Lion itself as a contributing factor to the fund’s underperformance. It also doesn’t help that Fund II houses one of Lion’s more challenging investments – frozen food company Findus, which in February 2013, along with a number of other big food retailers not connected with Lion, was found to be selling beef lasagne made from horse meat.