Hunter warns the going is getting tougher
Entrepreneur Sir Tom Hunter is getting worried about the credit crunch: “We’ll all have to work a bit harder and things will take a bit longer,” he told a reception hosted by networking group Pi Capital last week.
After his speech he confirmed sentiment had taken a sudden turn for the worse: “Capitalism goes through cycles and sentiment tends to swing too much one way, or another. This is the biggest swing I have seen in 25 years.” He said the deteriorating climate could lead to a cut in donations to charity by wealthy individuals: “The two are invariably linked.”
Hunter, renowned for his philanthropic efforts, never stays downbeat for long.
He said he there was no reason for him to cut down on his donations: “We have plenty of cash in hand.”
Hunter and Pi Capital, led by David Giampaolo, have prospered during the boom which followed cuts in interest rates after the 2000 equity bear market.
Both network furiously to achieve their ends. Hunter has staked out a string of companies. Giampaolo reckons Pi has helped foster “ five to seven” deals a year. But Giampaolo warned: “My members have become extremely cautious and reserved. There will be no such thing as business as usual this year. Fortunes will be made, and lost, over the next five.”
Hunter is studying longer-term opportunities, but said the time was not yet right to back recovery situations.
Several banks including HBOS, backer to Hunter and 20% shareholder in Pi, are queuing up to recapitalise their balance sheets. One delegate at the Pi meeting expressed concern that there might not be enough new capital to go round.
In his speech, Hunter said luck was key to his success – effectively the good fortune of being in the right place at the right time, in a rising market. His portfolio approach to doing business is a variation on the private equity theme – particularly reminiscent of Sir Richard Branson, who also likes to be seen as a philanthropist.
Hunter started his first business, Sports Division, in 1984 selling trainers out of the back of a van and charming retailers into stocking them. The factor that fuelled Sports Division’s growth was the growing popularity of trainers as a fashion accessory. Hunter sold the business to JJB Sports in 1998 for £296m, falling to £260m after retailer Sir Philip Green took a cut in return for financing the company’s acquisition of Olympus Sports. JJB this month announced cuts and Hunter has no plans to return to the shoe business.
He said: “My first venture after the deal failed. It showed I wasn’t Midas.”
He took the lesson on the chin, and started to invest alongside people he felt he could trust. He gained access to several deals as a result of being entertaining company and offering bright ideas to his partners.
They include property entrepreneur Nick Leslau and Icelandic retail group Baugur. In a rare disappointment, Hunter was furious with UBS in 2005 when its banker Jon Wood, plus co-investor Peter Wilkinson, sued him over a joint-venture and lost.
He teamed up with HBOS last year to complete the leveraged buyout of housebuilders Crest Nicholson and McCarthy & Stone for a total of £1.5bn. Trading conditions are not ideal, but Hunter said both companies are well managed and HBOS is committed to them as a shareholder as well as a lender: “There is a shortage of housing in this country, and that situation is not going to go away.”
Following the sale of Sports Division, Hunter formed West Coast Capital in partnership with accountant Jim McMahon and lawyer Paul Davidson to look after his portfolio of businesses.
He immersed himself in philanthropic work through the Hunter Foundation, initially to avoid tax and later because it gave him a sense of achievement: “To start with it wasn’t even item 0.37 on my agenda, but now I find it incredibly fulfilling.”
Hunter has said he intends to give away future profits from West Coast Capital worth £1bn (€1.25bn), although this is aspiration rather than reality, for now. He has set out to fund Scottish charities, including schools, aiming to use leverage from the public sector at every opportunity.
Hunter wants to help relieve poverty in Africa. He helped to finance the Live Aid and Live8 rock concerts staged by Sir Bob Geldof. He is co-investing with former US president Bill Clinton in Rwanda and Malawi. He reckons that Clinton is in a far better position than him to ensure his money is spent wisely, and makes no secret of enjoying his company.
Hunter:
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