Charterhouse Heirs Struggle to Maintain Bonnyman Legacy

Charterhouse Heirs Struggle to Maintain Bonnyman Legacy

Charterhouse Capital Partners LLP, Britain’s oldest buyout firm, posted some of the industry’s biggest returns after spinning out of HSBC Holdings Plc. (HSBA) Handing off that legacy to the new generation is proving harder. While its London-based competitors expanded across Europe, Charterhouse operated from a single office in the shadow of St. Paul’s Cathedral, betting that a tight-knit culture would produce stronger returns. The strategy worked, with results surpassing CVC Capital Partners Ltd., Europe’s biggest private-equity firm, according to data compiled by Bloomberg.Since Gordon Bonnyman stepped down after two decades as managing partner, the 79-year-old firm is facing a challenge on two fronts: a fading track record and a succession process that’s triggered a lawsuit from a former partner claiming he was cheated out his stake in the company. Charterhouse calls his actions blackmail. The combination makes it more important that the company returns cash to investors through asset sales before raising a new fund next year.

“When a management team steps down, particularly when they have been responsible for a large part of the firm’s success, you need to increase the amount of due diligence before backing again,” Jos Van Gisbergen, who manages private-equity investments for Dutch insurer Achmea BV, said, speaking generally about succession and not Charterhouse specifically. “In cases where change has been signaled long in advance, the decision can be easier, but the new leadership may be less able or have different ideas on how to generate returns.”

Charterhouse’s Returns

Charterhouse, spun off from Europe’s biggest bank a dozen years ago, on average produced returns equivalent to about 2.3 times investors’ original pledges under Bonnyman’s leadership from 1990 to 2010, according to documents the firm sent to investors that were reviewed by Bloomberg News.

Over the last 20 years, London-based CVC on average doubled investors’ commitments to their funds, according to the California Public Employees’ Retirement System. London-based Permira Advisers LLP returned investors 1.6 times the money they gave from 1996 through June 30. CVC and Permira officials declined to comment.

“They came in with a very strong deal team during the auction process,” Walter Schmidt, chief executive officer of Essen, Germany-based energy metering firm Ista International GmbH, said in an interview. “They made a lot of efforts personally to understand the business and its key levers and very early on we got the impression that they would be a good partner.” Charterhouse sold Ista to CVC this year in a transaction valued at 3.1 billion euros ($4.2 billion).

Porterbrook Deal

One of Charterhouse’s most successful deals was the 1996 purchase of U.K. train owner Porterbrook Leasing, which had taken over a third of British Rail’s carriages. It sold Porterbrook in less than a year, making 6.5 times its money on a 79.5 million-pound ($127 million) investment and sparking criticism the government sold the company too cheaply.

The firm raised seven funds under Bonnyman, totaling 13.5 billion euros, before he stepped back into a part-time role as executive chairman in 2010.

The three-member team Bonnyman, 69, chose to replace himself with — Lionel Giacomotto, 48, Malcolm Offord, 49, and Jeremy Greenhalgh, 50 — lasted less than a year. Staff complained that multiple reporting lines slowed decision-making and risked creating potential conflicts over investments, said one partner, who asked not to be named because the internal workings of the firm are private.

Giacomotto’s Role

French-born Giacomotto, the firm’s first non-U.K. national investment team member, was named sole managing partner in 2011 following discussions among the three men and the rest of the partnership, said two people with knowledge of the discussions who asked not to be identified because they weren’t authorized to speak publicly.

Giacomotto, who joined Charterhouse in 1993, was instrumental in building the company’s reputation in Europe, having initially been responsible for managing the relationship with Charterhouse’s then-partner for French deals, the state-backed investment group Caisse des Depots et Consignations. In 2005, the firm opened a Paris office, which doesn’t look for deals independently and instead is used to support portfolio companies and administration, said one person.

After the departures of partners including Edward Benthall, 50, Thomas Plant and Roger Pilgrim, 56, Charterhouse moved to remake the ownership structure to reflect the makeup of the investment team, said a person with knowledge of the plan who asked not to be identified.

Ownership Restructured

In February 2012, Watling Street Capital Partners LLP bought a 91 percent stake in Charterhouse Development Capital Ltd., which acts as the managing member of Charterhouse’s parent company, Charterhouse Capital Partners LLP, and lists 13 executives as directors, according to filings at the U.K.’s Companies House.

Watling, which paid 2.7 million pounds in cash and 11 million pounds in debt for the company, lists Bonnyman, Giacomotto, Finance Director Bruce Dockeray, 56, and Thomas Patrick, 41, as members and states that 16 other unidentified members are entitled to share in the profits derived from the sale of companies in Charterhouse funds.

In a lawsuit filed in High Court in London in July, former partner Geoffrey Arbuthnott, 57, claimed that other owners were trying to seize his stake for 5 percent of the 300 million pounds or more that he said the firm was worth.

‘Illegal Activities’

According to court documents filed by Charterhouse, Arbuthnott was having lunch with Chairman Edward Cox, 80, at the Hoste Arms, a four-star hotel in the coastal U.K. town of Burnham Market, when Arbuthnott made “sudden demands” that he be paid 50 million pounds for his shares or he would disclose “illegal activities” over his more than two decades at the firm. He cited the misuse of “confidential information in making acquisitions,” according to the documents.

In its court filing and a separate statement in July, Charterhouse denied wrongdoing and said it “refused to be intimidated” by Arbuthnott’s “blackmail.”

Arbuthnott resigned as an executive in 2008 after becoming “disengaged from Charterhouse’s business” and “no longer making the contribution, or indeed effort, of someone in his position,” Charterhouse said in a court filing. Jonathan Hawker, a company spokesman, said in an e-mailed statement in July that Arbuthnott never provided details of his claims, and that the firm had independently investigated the allegations and found them to be false.

Alchemy Partners

Arbuthnott couldn’t be reached through directory assistance and his lawyer, Gary Milner-Moore at Herbert Smith Freehills LLP in London, declined to comment. Charterhouse executives also declined to comment for this article. A trial is scheduled for early next year.

Charterhouse isn’t the only buyout firm to have difficulty managing the transition between generations of dealmakers. Alchemy Partners LLP’s founder Jon Moulton, 63, resigned in protest in 2009 after his successor, Dominic Slade, 42, decided to focus on financial-services deals, Moulton said in an open letter to the press. His exit led the London-based firm to wind down its buyout unit. Moulton and Slade declined to comment.

Nordic Capital, a Stockholm-based private-equity firm, and Permira are among those that have successfully moved to a new generation of leaders in recent years, with both raising new funds after a new management team was named.

More Departures

“To any firm going through the process now, I would advise that the transition needs to be clearly communicated internally and externally so people understand the outcome and what changes, if any, are likely to take place once it is complete,” said Joakim Karlsson, 42, managing partner at NC Advisory A/S, adviser to the Nordic Capital funds.

Charterhouse’s transition remains a work in progress.

Greenhalgh, who was part of the three-man leadership team with Giacomotto after Bonnyman stepped down, left in December 2012, said a person with knowledge of the situation. Offord, the third member of that group, is set to retire by the end of the year, a decision a person with knowledge of the matter described as amicable. Greenhalgh couldn’t be reached for comment through directory assistance or message requests on networking site Linkedin; Offord declined to comment.

Charterhouse has hired dealmakers Leif Lindback, 36, and Chris Warren, 38, from Blackstone Group LP (BX) and London-based ECI Partners LLP respectively since January, said one person, bringing the number of investment professionals to 23.

Fading Performance

Since Bonnyman stepped back, Charterhouse has told investors that its eighth fund, a 4 billion-euro pool raised in 2006, is unlikely to match past returns. It is valued at 10 percent more than investors’ original commitments and has only returned 600 million euros after seven years, documents show. Buyout funds are typically valued at or below cost in their early years and rise as the investments are sold at a profit.

While the 4 billion-euro 2009 fund is valued at 20 percent above its original cost, according to investors, it has sold only one investment. That was London-based oil and gas researcher Wood Mackenzie Ltd., which had a gain of 238 million euros, documents seen by Bloomberg News show. The departing Offord led the deal, according to Charterhouse’s website.

Charterhouse’s recent efforts to complete deals have also stumbled with a 1.6 billion-pound offer for security services firm G4S Plc (GFS)’s cash-handling unit rejected after the Crawley, England-based company said in a statement last month the bid “fundamentally undervalues” the business.

PHS, Vivarte

The fund’s investment in U.K. washroom-services company PHS Group Plc, which it bought for 739 million pounds including debt in 2005, has been cut to zero after its performance worsened, while French retailer Vivarte SAS breached terms on its 2.8 billion euros in loans in July.

By contrast, Charterhouse’s 2002 fund, the last that Bonnyman handled day-to-day for most of its life, is valued at more than twice the 2.7 billion euros originally pledged, investors said.

“If you are committing to a 10-year fund, you need some visibility of what succession issues there may be over that time period,” said Peter McKellar, 48, chief investment officer at private-equity investor SL Capital Partners LLP in Edinburgh, commenting on succession generally and not Charterhouse specifically. “Investing in a fund is like a marriage, and you are trying to minimize surprises.”

Fund Extension

The departures and the declining valuations of companies such as PHS, Vivarte and U.K car-leasing business Drive Assist Holdings Ltd. is a concern for investors considering whether to approve Charterhouse’s request to extend the investment period for the 2009 pool by a year to March 2015, said two investors.

Private-equity firms typically pool money from pension plans and endowments for a 10-year period, buying companies in the first five years and selling them in the next five years. The buyout firms get to keep 20 percent of the profit from investments and, in Charterhouse’s case, charge investors an annual management fee equivalent to 1.5 percent of the fund, or 60 million euros.

Charterhouse has told limited partners it’s confident it will get the extension in return for a cut in fees, said the investors. Should the management fee be based on what the firm has spent instead of the fund’s total value, it could result in a reduction of about 12.5 million euros compared with previous years, the people said.

The firm plans to start raising a new fund in the second half of 2014 if the extension is approved, said three people with knowledge of the matter. Investors want to see how the new team performs and further sales from the 2006 and 2009 funds before deciding whether to commit again, the people said.

Despite the management and investment-team changes, Frederic Sanchez, chairman of Fives SA, remains a Charterhouse fan. The buyout firm sold the Paris-based construction firm last year for a profit of 189 million euros, 3.7 times the original investment, according to documents seen by Bloomberg News.

“Charterhouse has been the best investor we have had over the past 12 years,” Sanchez said in an interview. “We used to work with IK, Axa and Barclays Private Equity and by far they were the most balanced and professional. They trusted us to get on with the job.”

To contact the reporters on this story: Kiel Porter in London at; Sabrina Willmer in New York at


About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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