 Alumni interview
Alumni interview:
Simon Rowlands (MBA 1986)
By Stephen Hoare
Simon Rowlands, one of the founding partners of the leading European private equity firm Cinven,
talks of an optimistic future for the industry and explains how he sees private equity as one of the best
ways investors can add value and develop healthy businesses.
A new era for
Private
Equity
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Management Focus | Autumn 2012
C
reativity and private equity may
not be obvious bedfellows. It
was financial engineering and the
Cranfield MBA rather than the flow and
shape of curved structures built in metal,
glass and concrete that inspired chartered
engineer Simon Rowlands to swap his hard
hat for a business suit. “I see private equity
as a way to build things - not just a way of
making money. It is the investment in time,
money, people and resource that allows
things to be created and built,” says Simon,
whose deal making skills have created value
for pension funds and institutional investors
as well as employment and opportunity for
many.
From the Cranfield MBA class of 86, Simon
had been working on a major engineering
project in Zimbabwe when he decided it
was time for a career change. On leaving
Cranfield, Simon joined the manager of
the vast British Coal pensions fund, CIN
Management. With the privatisation of the
fund in 1995, Simon was part of the successful
management buy-out of the private equity
arm called CIN Ventures - Cinven for short.
Cinven had deliberately shifted up several
gears from passive investing to deal-making
on a grand scale. “In those days the private
equity market in Europe was valued in the
hundreds of millions. Today private equity
is worth an estimated three trillion dollars
worldwide. There was an element of luck
and good fortune in my choosing to enter an
industry just at the start of what proved to
be a long term upward curve,” says Simon.
Cinven set out its stall to become a European
company with a worldwide ambition.
Private equity finance has been around for
many decades. Private equity firms offer
manageable risk and have sustained superior
long term returns, comparing favourably with
other more traditional asset classes such as
public equities or bonds.
Today, City-based Cinven boasts 10 billion
Euros under management, four offices across
Europe and a more recently opened branch
in Hong Kong. The firm employs around
120 staff. Cinven’s portfolio of managed
companies includes some of Europe’s biggest
private healthcare businesses, aerospace
manufacturers such as Italian multinational
Avio, as well as popular restaurant chains
Pizza Express, Ask, and Zizzi.
colleagues decided to adopt a strategic sector
approach of specialising in discrete sectors.
Simon focused on Healthcare. “We set
about identifying companies that we would
like to own because we felt a combination of
operational and, or, strategic change could
accelerate the growth of the company.”
Simon and his fellow partners’ primary aim
is to make a healthy return when companies
are sold back onto the market after four or
five years.
The financial crash came just as Cinven was
getting into its stride and it has weathered
the storm far better than anyone could
have predicted. Market turbulence sparked
a fundamental appraisal of Cinven’s own
business model in early 2009. Simon recalls:
“When you have built a successful business
and recruited many talented people who
trust you then it’s a challenge. So after the
One of the firm’s founding partners, Simon
explains that from the outset he and his
Management Focus | Autumn 2012
27
 Alumni interview
financial crisis began to unfold we carried
out a bottom up review of the business.
We asked ourselves if private equity as an
asset class would be attractive and relevant
for institutional investors in the new world.
We’d made terrific returns on many former
portfolio companies and we had built up
around twenty businesses in our then
portfolio. After several months of analysis
and discussion we concluded that the private
equity model could continue to deliver, into
the future, superior risk adjusted returns.
We decided to invest further into the fabric
of the firm, opening an office in Hong Kong
and reinforcing our operational improvement
in-house team.”
Cinven’s institutional investors make a ten
year commitment to a new fund. Returns
are as a result of capital gains achieved on
the sale of underlying companies in the
fund portfolio. Cinven’s latest fund, its
fourth since the company was founded, has
yielded above average returns and is in the
upper quartile for private equity funds. The
company is in the process of raising money
for a fifth ten year fund and has around 150
major investors.
(“GdS”) in France and the second largest
hospital group in the UK private sector,
General Healthcare Group (“GHG”). By
merging GHG with the fourth largest
private operator in the UK and improving
the performance of the combined entity,
GHG became the number one and best
in class. In France GdS was restructured,
receiving a great deal of capital investment
and transformed its underlying return on
capital, such that we were able to IPO GdS
on the Paris stock market in 2001. In both
cases, under new management structures
and strategies we created bigger and stronger
businesses and better places for employees
to work. The eventual combined capital
gain was in excess of 0.75 billion Euros,”
says Simon.
Not all private equity deals are this successful
and in the past the industry has been accused
of buying up companies to asset strip them.
This approach is self-defeating argues Simon.
“The misconception is that we buy assets,
leverage them by piling them with debt and
then squeeze the life out of them. What
we do instead is to build businesses. This
is fundamental to achieving the expected
returns for our investors,” he says.
Although Simon joined the industry straight
from an MBA, opportunities like this are
few and far between. In recruitment terms,
specialised experience counts. Private equity
firms recruit from the ranks of investment
bankers, business consultants and industry,
many of whom will be at a stage in their
career when they already have an MBA. “We
tend to recruit people in their late twenties
who have had significant strategic experience
with firms like McKinsey, Bain and BCG or
from Goldman Sachs, JP Morgan and Morgan
Stanley,” he says.
Right now with a fifth investment fund
already in the process of subscription Simon
is making good on a promise he made to
his wife who he met and married before he
started in private equity. “My wife extracted
a promise from me in 1986, she remembers
it well, that we would have interests in
Zimbabwe one day. I’m approaching
retirement so I’d like to take the chance to
bow out and focus on investing in emerging
economies. My wife and I are building a
house in Victoria Falls and will divide our
time between London and Zimbabwe. I am
writing a letter to myself, with a deadline of
Christmas 2012, setting out, if and how, to
approach investing in Southern Africa. It is
a fascinating position to put yourself in and
frankly I am still not entirely sure what the
letter will recommend. Several people have
offered (including Cranfield’s Professor Joe
Nellis) to read and confirm the integrity of
the letter!”
“I see private equity as a way to build things - not just
a way of making money. It is the investment in time,
money, people and resource that allows things to be
created and built.”
Simon is optimistic that private equity will
remain one of the best ways investors can
add value and develop healthy businesses.
“In fact I’m of the view that private equity will
survive and flourish,” he says. And with his
expertise that approach will soon be making a
contribution in some of the emerging market
regions of the world. MF
Cinven’s success derives from having
specialist sector teams leading the
acquisitions. Simon cites the example of
building market leadership in private hospitals
in both the UK and France. “Cinven acquired
the poorly performing Generale de Sante
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