John Moulton: The man who walked away

"The unacceptable face of capitalism" is a phrase that should have been invented for Jon Moulton, the venture capitalist whose Alchemy Partnership has stumbled in its bid to buy Rover from BMW.

Moulton looks mean. Bald, wiry, cold- eyed, thin-lipped, those glasses - he makes an easy hate-figure. He looks, in fact, not so much as though he would sell his own granny for sixpence but that he would be happy to sell her kidneys to Ford, flog her liver to General Motors and sell the rest for scrap. "Some people would say that his main delight is picking the legs off flies," says one unkind acquaintance. It was easy for Moulton to be roundly and routinely abused by trade-union leaders - when they'd finished with the perfidious Germans - as an "asset stripper", the would-be sadist of Longbridge. And Moulton has never gone out of his way to win hearts and minds: "Making people redundant is not a nice thing to do, but nor is removing haemorrhoids and sometimes that needs to be done," is a typically rebarbative remark.

Now, of course, the unions are overjoyed that Moulton's negotiations with BMW have broken down and that the deal appears to be off. "I can see light at the end of this dark tunnel," in the relieved words of Roger Lyons, head of the MSF union, a typical reaction. But Mr Lyons and those who think like him are very, very wrong about Moulton and have badly underestimated the potential of Alchemy's bid for Rover. They may not like it, but Moulton's could well be the best bid Longbridge will ever see. BMW may well return to Alchemy.

If they do, then we can be sure that there will be fewer jobs at Longbridge but, as Moulton is at pains to point out, those jobs will be far more secure: "The reality is, there are two choices, no jobs or some jobs. We prefer the latter," he says with typical bluntness. Moulton is, perhaps surprisingly to the Birmingham Union Jack brigade, a patriotic man who has been known to read books on Second World War battles for inspiration (it will not have been lost on him that Rover factories made Spitfires during the war). He also has a photograph of Winston Churchill in pride of place on his office wall, bought for 50p in one of his early insolvencies). He even drives a Mini, although the family car is an Audi.

Even so, Moulton was never interested in Rover to "save jobs" or preserve British prestige. No, Moulton has always cheerfully admitted his ambition that "if we get it right, we can make a great deal of money" out of the Rover deal. Once this was threatened, it was inevitable that Moulton would walk away. Moulton's career is littered with examples of deals that fell at the last hurdle - including attempts to finance abortive management buy-outs at Land Rover in 1986, and for the Rover Group as a whole in 1988 when the government was trying to offload onto the private sector. All the indications are that BMW - in the latest in a string of incompetent moves - effectively upped the price of Rover at the last minute. But to pay too much for Rover would have violated the first rule of the Moulton way of capitalism: never pay too much for the assets. After all, the more expensive the base metal, the more difficult the alchemist will find turning it into gold.

This is something that Moulton learned early in his business career, from the time he began specialising in insolvency work with Coopers & Lybrand, with whom he trained as a chartered accountant. He had studied chemistry at university but "it seemed a way to pennilessness". Money, it is clear, makes Moulton tick. An early posting to New York with Coopers exposed him to the methods of the legendary "Junk Bond King", Henry Kravis of the investment boutique KKR. Moulton was 30, and he remembers Kravis with reverence. After a short spell with Citicorp Venture Capital in New York, he was headhunted to start Schroder's London venture-capital arm in 1984 - returning home after, he points out, the Thatcher government had "made the tax situation sensible".

Moulton's near decade at Schroder was supremely successful. His favourite deal and the one that helped secure his reputation was a £50m management buy-out of Parker Pens from Manpower in 1986, and subsequent sale for £312m seven years later. Like Rover, Parker Pens had a decent brand that had been mismanaged into near oblivion. Jobs were lost but the firm was saved and turned round. And Moulton moved on.

Moulton, like most of his peers, has enormous drive. Unlike most of his counterparts, however, this zest may derive from a appallingly sickly childhood: "I had TB and then aplastic anaemia, which is fatal in 92 per cent of cases. You stop making any blood cells. Then I had amoebic dysentery twice". In any case, Moulton seems to thrive on the long hours - around 100 per week - that are the norm in his field: "I leave home at about 7am and get home by about 8pm, although it's not unusual for me to get home at 11.30 pm".

But his manner of leaving Schroder was also characteristic. Just as he finds it easy to leave the table if negotiations fail, he also finds it easy to leave an organisation - even one that he basically built up - if personality differences loom. Moulton left Schroder after a "row" in 1994 and worked for the next three years at a much smaller concern, Apax Partners. His most high-profile deal there was the buy-out of Brands Hatch, eventually floated in late 1996. By this time, Moulton had become wealthy, worth "in the low tens of millions of pounds," as he put it. But at Apax, again he found that he couldn't work with everyone and there were "personality differences" between him and the head of Apax, Ronald Cohen. In January 1997, Moulton went his own way and founded Alchemy Partners.

At Alchemy, Moulton has been free to develop and follow his own management philosophy with like-minded souls, including Brandon Gough, his old chief at Coopers, and Eric Walters, the other partner involved in the Rover deal. Alchemy favours the riskier deals - like Rover - that other venture capitalists tend to avoid, and in particular favours rescues of firms in untrendy sectors like retailing and engineering. Moulton has avoided becoming much involved in "TMT" (technology, media and telecoms) and this has helped him avoid "bidding wars" that would push up the price of the assets and devalue the potential for profit and a successful "exit".

Moulton's formidable reputation has ensured that he can attract backing from a variety of institutional investors - including Bank of America, Goldman Sachs Asset Management, the United Bank of Kuwait and the Merseyside Pension Fund. Moulton is understood to raise about £100m a year for investments that usually run to £2m to £20m a go. The Rover deal was to be far larger in scope and profile than anything tackled before, but it was firmly in the Moulton mould.

Alchemy quickly secured its first coup in the summer of 1997: the acquisition of AG Stanley, the Fads and Homestyle wallpaper and home-furnishings group from Boots. "We got £57m of assets for £1" he exclaims. Rover deal or not, Alchemy has certainly been a success: in 1998 it was second only to the well-established 3i company in the venture capital league table. The public had still not heard of Alchemy, but its position in the City was well known.

So Moulton, it must be stressed, is not a classic Slater-Walker style asset-stripper, ready to buy an undervalued company, sack the workforce and sell off the land, buildings and machinery, to make a quick turn.

True, Moulton has made plenty of enemies in Wiltshire by closing the historic Ushers brewery, founded in 1824, and selling off the land for redevelopment. Such activity can never be ruled out for a venture capitalist. But more often than not, Moulton sets about saving a business - and with it a sustainable level of jobs - rather than scrapping it. The usual Moulton technique is to take a product or a brand that has been mishandled like Parker Pens or Harmony hairspray or Rover, refinance it and install management that can restore it to something like health, at which point it is sold off or floated on the stock market "as soon as humanly possible", as Moulton says. Five or six years is the normal timetable he allows himself. Jon Moulton is nothing more or less than an extremely effective economic agent whose first instinct is to search for profit, but he is no industrial vandal. He is an opportunist.

According to one source, it was camouflage netting and that first alerted Moulton to the plight of Rover. Last Autumn, Moulton was attending a board meeting at Hayden McLennan, one of the many and disparate firms in which he has a financial interest. There, Moulton learned by chance that the firm had run out of its main product. He enquired why, and was told that they simply couldn't meet the demand from their primary customer Rover to disguise acres of its unsold new cars in fields up and down the country.

It says a lot about Moulton that this curiosity was driven by an instinctive impulse to sniff out new ways of making money for himself and Alchemy. Again, typically, Moulton moved rapidly and decisively on his impulse. He was soon on a plane to Munich to make a speculative offer to BMW for their "English patient". Moulton and his partner Eric Walters were received politely in Munich, but no commitment was made. But the fact that Moulton had shown such an interest so early and had such a clear idea about what could be done with Rover, was key to Alchemy's special relationship with BMW, which has only now been broken. It is impossible to believe that, given the extreme diligence and attention to detail that Moulton had put into his plan for Rover that it was he who was principally responsible for the breakdown in the negotiations with BMW. It was Moulton who framed the main elements of the deal - the sale to Ford of Land Rover, so that BMW could recoup its losses, and the retention by BMW of the Mini brand, the modernised Cowley works and the sale of the bulk of Longbridge to Alchemy. There was also a credible plan for Alchemy's revival of the MG brand, and the brave and realistic decision to recognise that the Rover name had been driven into the ground and was incapable of recovery. As a niche brand with a much smaller workforce, and exploiting the latest in production techniques with the help of Lotus, MG and Longbridge could have been revived and, in five or six years, floated or sold on to a partner like General Motors (who already own Lotus).

In other words, Jon Moulton's plan for Rover as the MG Car Company may not have kept the entire workforce employed at Longbridge. It was certainly not the first choice of the trade unions or the Government. But it would have worked. Jon Moulton may not be the nicest of men, but for all its tribulations, the British motor industry has always thrown up some remarkably awkward but powerful and gifted individuals, from William Lyons (founder of Jaguar) to William Morris to Alec Issigonis to Michael Edwardes. Jon Moulton would have been a worthy successor. If BMW has to return to Alchemy, Moulton may still be able to play a role. As he says: "For years, Longbridge has been a bit like waiting for the next shell to fall". It is still waiting.