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MACRO-TO-MICRO EQUISTONE AT 40

Equistone’s first 40 years

Equistone is one of Europe’s oldest private equity houses. It has demonstrated remarkable continuity in its focus, values, people and culture. 

IN 1979 THE UK’s four major clearing banks – Lloyds, NatWest, Midland and Barclays – started up their own equity finance subsidiaries. “Of particular interest… is the growth of Barclays Development Capital Limited, which we set up specifically to provide new or replacement equity capital for private companies,” wrote chairman Sir Anthony Tuke in the Barclays Bank annual report of 1980. This new company was “ready to assist with equity participation of £100,000 or more by way of replacement capital, or as part of a management buyout.” By the end of 1980 Barclays Development Capital had invested £2.79m of equity finance in the UK.

This was the modest start for today’s Equistone - one of Europe’s longest-running private equity houses. Few other private equity houses have so enduringly kept to their initial mission and core purpose. The scale and reach of its operations may have expanded – and of course the ownership has changed – but the song has remained the same.

The 1980s: modest investments, minority stakes

The deal environment in which Barclays Development Capital prospered in the 1980s was one in which the firm made modest investments for minority stakes. Almost all the business came via the local branch structure of the clearing bank. There were few intermediaries. “Management teams would travel down to London to see you, not the other way around,” recalls Tom Lamb, who joined the firm in 1985.

At this stage, the operation was entirely funded from off the Barclays’ balance sheet. There was no carried interest scheme. Bonuses were based on realised profits.

I was being given a blank sheet of paper, and it was too good an opportunity for me to miss.

In 1989, Brian Blakemore was plucked out of Barclays’ corporate lending department to open an office in Birmingham. “I was being given a blank sheet of paper, and it was too good an opportunity for me to miss.”

Towards the end of the eighties, the UK economy turned down sharply, the banks tightened their lending policies and company failure rates rose. “It was carnage. We had 80 or so smaller companies in our portfolio and we had to refinance about half of them,” recalls Tom Lamb. “We did not do a new deal for 18 months.”

Evolving leadership

JEREMY SEDDON // 1979-1981: “The original architect of Barclays Development Capital.” The Times Obituary, 5 January 2007

MICHAEL CUMMING // 1981-1995: now aged 79, and involved with Mercia Fund

ERROL BISHOP // 1995-1997: now aged 81

GRAEME WHITE // 1997-2005

CO-HEADS // Tom Lamb/Paul Goodson, Gonzague De Blignières, Peter Hammermann // 2005-2011

GUILLAUME JACQUEAU // Managing Partner 2011-to date

Main photo: Graeme White. Clockwise: Tom Lamb, Brian Blakemore, Peter Hammermann, Gonzague de Blignières.

The 1990s: a decade of expansion

However, the vintages of the early nineties turned out to be classics and a decade of growth followed. The firm expanded. In 1990, a new business was opened in Paris, headed by Gonzague de Blignières. It was established as a parallel business – a sister company to be run independently and not a subsidiary of the UK operation. The Manchester office opened shortly after.

Now led by Graeme White, the firm opened an office in Munich in 1998. “The first deal put forward by the German team was not one that the UK would have considered doing. And I said so,” says Tom Lamb. “Graeme’s response was to say: ‘I understand your concerns but we have recruited these guys because we think they are good and this is the deal they want to put forward. If we are going to have a business in Germany, we do not turn this down.’ We didn’t. And he was right.”

The new country heads were put onto the investment and management committees of the business. “His view was that if we did not, we would not have a cohesive business in the future,” says Tom. “It would always be them and us. They had to participate in all our investment decisions from the start. If we had waited years for them to prove themselves, we wouldn’t have the right culture. He was right about that, too.”

That distinctive culture was evident to new arrivals. “It felt collegiate when I joined and that has remained,” says Phil Griesbach, who joined the Birmingham office in 1997. This has always been a firm where people want you to do well and recognise that we are all in it together.”

The second half of the 1990s was “fantastic – a golden age,” remembers Blakemore. Judiciously, the firm deliberately stayed away from getting caught up in the dot-com mania.

In the 1990s the firm started to manage external money. While Barclays had always recognised that the business had to be run independently, this was a big step. External investors allowed the firm to take majority positions without the bank having a controlling stake.

Initially, this was addressed via an arrangement with a firm called Parallel Ventures but, as the new millennium dawned, Graeme White decided that the firm needed its own fund to manage. Barclays Private Equity, as it was known by then, was to evolve into a semi-captive operation.

2000: fundraising begins

In 2000, Graeme White and Brian Blakemore appointed Doug Miller as placement agent. At the time, LPs were very sparing with commitments. And this was an unusual proposition. It was a first-time fund, but with decades of experience and the credibility of the Barclays name behind it.

In industry terms, it was a volume house. It was pan-European in the lower part of the mid-market that was not well served. Graeme and Brian discovered their track record wasn’t just good – it was top quartile. But investors were wary of captive bank funds. They questioned whether the firm would enjoy the same deal flow, network and financing.

Marketing started in 2001 and Fund I closed in 2002 – hitting the target of €1.25bn. “The best thing was the quality of our investors,” says Brian. “They included a Dutch pension fund, who had told us they never invested in a bank captive, and one of the world’s biggest sovereign wealth funds. We had investors with the capacity to invest in our future funds.”

In the noughties, the weight of money available grew year-on-year. Institutional confidence in private equity as an asset class grew.

The firm’s second fund closed in early 2005, raising €1.65bn in eight weeks. “We could have raised more but we wanted to stick to our market,” says Brian. “If you raise more than you intend, you face the greater risk of deploying it in larger deals that are outside your space. Investors will accept gradual progression – rather than a material change in strategy.”

We could have raised more but we wanted to stick to our market. If you raise more than you intend, you face the greater risk of deploying it in larger deals that are outside your space. Investors will accept gradual progression – rather than a material change in strategy.
Christiian Marriott

Fast forward to this year and this can be seen as one of the many consistent themes of the firm. “Instinctively, we felt that not going all the way to €3bn was the right thing to do. We didn’t want to look arrogant in the market. We didn’t want to look greedy.” (Current head of investor relations, Christiian Marriott, quoted in Real Deals, published 27 March 2018.)

But 2005 also witnessed tragedy as Graeme White died from pancreatic cancer at the age of 51. Gonzague de Blignières, Peter Hammermann and Tom Lamb adopted a co-head leadership model of the business.

“We set great store by our founding principles,” says Tom. “We resolved to pay attention to detail; not to pay silly prices; to focus on quality and work closely with management teams; and to be collegiate – above all, this is a team game.”

In 2007, a third fund – which was Brian’s swan song before retiring – closed at €2.45bn. Half of it was rapidly invested. But then bigger events took hold – as the year heralded what would be a defining four-year period for the firm.

The buyout from Barclays

Intense parliamentary scrutiny, media criticism and reputational damage engulfed the private equity industry. Then came the warning signs of the impending credit crunch, the failure of Lehman Brothers and the global financial crisis. It was to trigger the firm’s buyout from Barclays.

Private equity had always supplied Barclays with steady strong returns but the global financial crisis put the bank under severe capital constraints, jeopardising its capacity to be a cornerstone investor in a fourth fund. It had either to contribute or sell the operation.

Owen Clarke

In the second half of 2009, Barclays decided to sell. The process took two years. “It was the most difficult transaction I have been involved in,” recalls Owen Clarke, who led the negotiations with Barclays. “The dynamics were tricky at a business and a human level. In the wake of the crisis, it was difficult for the bank to sell to anyone but us, which in turn made the bank uncomfortable at their lack of leverage. And we were the buyout experts. They responded by taking a pretty aggressive approach to our discussions. And for our part, we were negotiating with our own bosses. It made it unusually difficult to build trust during the transaction.”

While Owen Clarke was leading the buyout talks, current managing partner Guillaume Jacqueau and Christiian Marriott were raising the fourth fund. The two processes were interdependent. The capital had to be raised in order to have a viable business; investors were only willing to invest in an independent business. All this at a time when capital was extremely hard to find; institutions were seeing savage losses in their portfolios and reducing their exposure to private equity.

2011: an independent future

On 11 November 2011, a demanding and pivotal year climaxed with the conclusion of the buyout, a first close of the fourth fund – and the appearance of Equistone Partners Europe. 

“It reinforced for us the value of our model of different country teams,” says Owen Clarke. “It would have been easy for each country to do their own thing. We all concluded that we were stronger together, rather than being three separate country funds.”

Taking ownership of the business also demanded a strategic, long-term look at the investment strategy and future development of the business. The answer was clear: don’t change the focus. Equistone was to remain a pan-European mid-market investor. At its heart it has placed value on its consistency and reliability. “We have been good at staying consistent through economic cycles and being a straightforward and honest party with investors and management teams,” says Owen. “We have always been very disciplined and keen to maintain our focus on a specific market space.”

FILM: Tom Lamb and Steve O’Hare being interviewed by Fund Shack’s Ross Butler for an Equistone 40th anniversary podcast.

Learn from the past while looking forward

Today’s new generation at Equistone speaks the same language. “The challenge today is how to deploy funds when multiples are high. It forces you to look at complex transactions and to be inventive and rigorous in your response,” says Caroline Pinton, who joined the Paris office from the boutique investment bank Messier Maris & Associés. “There are still opportunities in stable, resilient, profitable businesses,” says Philipp Gauß, a former Stern Stewart consultant, who joined the Munich team in January 2020. Such responses to today’s market conditions are drawing from a 40-year-old playbook.

NEW JOINERS: Caroline Pinton, Philipp Gauß and Isabella Boman-Flavell.

There is a shared and deeply held belief that a private equity firm is not much more than its people and the culture that binds it – and that demands mutual respect and a strong bond of trust.

 “There is a real sense of collaboration and an atmosphere of open discussion,” says Isabella Boman-Flavell, a former associate director at RBS, who joined Equistone at the start of 2019.”  “There is constant brainstorming,” says Caroline Pinton. “The attributes of quality and humility in the team are very attractive. There is good, hard discussion but also full trust.”

The challenge today is how to deploy funds when multiples are high.
Caroline Pinton

Plus ça change. Tom Lamb recalls the early days of sharing war stories in the one office of Barclays Development Capital. “Everyone engaged in a lot of chat about deals – why they were done or not done – and that’s how I learned.”

It takes time to build a reputation – but 40 years provides a solid foundation for attracting the next generation into the business. “The history and longevity of the firm attracted me,” says Isabella Boman-Flavell, “but also its strong reputation among intermediaries and the management teams that it has backed.”

“I wanted to be in mid-market private equity and Equistone had one of the best reputations out there,” says Philipp Gauß. “I had high expectations before I joined – and all have been exceeded.” 

A full version of this article appeared in PLATFORM 02, Summer 2019