Tough though it may be to believe in these enlightened times, it was not so long ago that leisure was anathema to the City. The Bens and Rebeccas, Armani suits fresh and uncreased as they perched at their minimalist work-stations, were unimpressed by what they saw as the shabby end of showbiz. Not for them the reality of snooker halls, discos in the sticks or an afternoon’s bowling with the kids - their exposure to sharp-end leisure was restricted to evenings in the wine-bar and occasional Saturday nights at a Leicester Square cinema.

Then, in the mid-80s, along came First Leisure which, under Lord Delfont and John Conlan, was to become the acceptable face of the industry - the wholesome, family-orientated operator with squeaky-clean venues and an image to match

Today, of course, the shady operator is the exception rather than the rule. The likes of Luminar, Waterfall and Northern, along with catering visionaries like Conran and breweries such as Bass, have re-created an industry of which the City is proud to be a part. And right up there, singing leisure’s praises and putting its cash where its gob is, sits thriving venture capitalist Candover.

Now one of the country’s foremost funders of leisure buy-outs, buy-ins and acquisitions, Candover was started twenty years ago by the recently-retired Roger Brooke, a former non-executive director of Wembley Stadium. Begun with a working capital of £100,000, the company today, through a complex network of subsidiaries and investment trusts, has some £850 million of theirs and other peoples’ cash currently invested. Total investment over the twenty years tops £1.8 billion and has provided them with an impressive return averaging 30% plus.

Candover has done much to demystify and humanise the process of raising capital, providing a down-to-earth, common-sense approach without the strait-laced pomposity and superciliousness so beloved of our more traditional City institutions. Most recently, the company spearheaded the £210 million financial package which, with input from Lehman Brothers bank, PPM Ventures and 3i, funded the buyout of First Leisure’s nightclubs and bars division by a management team led by Director of Operations Paul Kinsey and Purchasing Director Roger Dyer. Candover holds 60% of the institutional investors’ share of the new company.

Candover’s understated offices gaze out onto the Royal Courts of Justice in London’s Old Bailey, but the atmosphere within could not be further from that worthy institution’s unapproachable austerity. The director partly responsible for Candover’s impressive leisure track record, Charlie Green, personifies the company’s image – tall, swarthily handsome, intensely knowledgeable and of an age (35) which places him one rung up from the champagne-swilling City youth.

Green joined Candover almost two years ago from Deutsche Bank, currently itself at the centre of a controversial merger with rival German banking giant Dresdner - “clearly, they think size matters” is Green’s dryly witty reaction to news of the deal. Along with colleague Hamish Mackenzie, a former non-executive director of Vardon (now Cannons plc), Green vanguards the team that sources and supplies equity investment for Candover’s leisure activities.

Understandably, cynics may say, the First Leisure break up was, in Green’s opinion, the only way to go. “There was a series of disparate businesses there” he says, “and you needed to micro-manage them from the centre to get sufficient growth to make it an attractive investment. But the stock market is a fickle master and the problems with the financial markets in August 1998 didn’t help. Loss of consumer confidence hit the businesses hard. By what they’ve done, they’ve probably realised the best value they could for shareholders.”

Green has little time for critics who claim that the likes of Candover have no true interest in the businesses they back and merely aim to get out as quickly as possible with as big a profit as possible. “If you don’t care about the business” he counters, “you won’t enhance its value. Often, the management and staff of a business who also have equity may feel that they would like to cash in too. We don’t force exits on management – they usually come to us and say they would like to float, or do a trade sale, or buy us out.” The average hold of Candover’s investments is currently 43 months, with more than 50% of exits coming as a result of trade sales.

“First Leisure has a great deal of flexibility in how one might exit. If we can get the growth that we’re after, there’s an exciting story to tell the Stock Market” Green says, hinting at flotation. “The focus we have on the 18-24 year-olds and the size of our database means that the internet will be vitally important to us.” First Leisure is currently working on an interactive website which, says Green “could provide the extra fizz you need to float the business.”

The basis on which Candover and the First Leisure management intend to grow the business is, Green says, by investment in new sites and by improving returns from the existing estate. As with all their investments, he also expects management to look carefully at any opportunities to acquire complementary businesses which would give a company a chance to exploit to the full any synergies and economies of scale.

Asked whether Candover has a wish-list of leisure investments, Green thinks carefully. “The key to all our investments is backing the right management, so it would be more accurate to say that we have a wish-list of managers with whom we’d like to work. Many of them have been through our doors at some stage of their career and we always try to keep a dialogue going. Just because there isn’t today the opportunity to acquire the company they work for from whoever owns it, doesn’t mean there won’t be in two years time – and we want to be top of the list of potential suitors.”

Candover will consider investing in any aspect of leisure, so long as it demonstrates growth potential. Health & fitness is a sector they have clearly studied in depth and Green admits to bidding for a sector player last year. “The problem for us is price” he says, “as it’s a high growth business, but growth is achieved by throwing more and more money at it. Any of the companies already in the sector could have bid for the company we were bidding for and take out all the head-office costs. I would imagine all the health-club operators are currently looking at each other and saying ‘Let’s buy each other…let’s merge!’”

“At the moment, health operators are valued on the sites they have under development” Green goes on, “but once they’re done and you have no more in the pipeline, how do you grow? There’s a limit to how much you can increase membership fees, so opportunities for growth may involve the synergies of combining with another group.” Green’s final word on health is that the business presents attractive opportunities, but he believes Candover not to be competitive in comparison to trade buyers - although he would happily back a trade buyer if the acquisition was right and the management met his strict criteria.

In all cases, Green is adamant that potential trade buyers for any business should consider whether a venture capitalist is the right source of finance for a buy-out. “We may be more expensive than going to the Stock Market or raising debt finance” he says, “but if we feel we are non-competitive, we always tell people up front and suggest other sources.”

Bingo is a business at which Green claims to have looked at “long and hard. We narrowly failed to win two or three deals over the last three years” he admits, “but we remain keen on the sector.” Asked whether he has looked at the Riva chain, originally the subject of an MBO from First Leisure and now for sale again, he laughs nervously and says “er, quite possibly.” Bingo, Green claims, is another business where management is vital – “and I don’t just mean the Chief Executive and the Finance Director!”

As investment targets, Green says that there is nothing they won’t consider, but that some opportunities are more attractive than others. This would appear to include Rank, in the midst of a rationalisation under the auspices of Chief Executive Mike Smith, of which Green says there are parts in which he may well be interested – “but then, we’re opportunistic, we look at everything and there may be trade buyers out there that need the financial muscle we can provide.”

Candover is not in the business of backing start-ups - a minimum of 3 years trading needs to be tucked tidily under a company’s belt before Green and his team will consider working alongside them – but he readily suggests that the best sources of start-up finance would be the banks or the business-angel network. “You must understand that we can’t spend our time looking at £1 million or £2 million investments” Green states candidly, “we don’t have the time or the resources.” Typically, they would look to take a minimum of £30 million of equity in a venture, which would equate to a deal with a £70-£80 million enterprise value. There is no upper limit, typified by Candover’s involvement in a £1.8 billion bid for Mirror Group in 1999.

Green refuses to be drawn too deeply into the issue of government’s attitude towards the leisure sector. “It may be a wonderful idea to allow nightclubs to operate all night” he says, “but I would query whether we’d actually make any money.” But he welcomes the backing of trade organisations such as Business In Sport and Leisure and points out that leisure is now becoming a more important sector of the economy and, as such, is held in more esteem by those who pace the corridors of power.

In line with Candover’s policy of thinking outside the box, the company is casting a more than insouciant eye at continental Europe. “But you can’t impose the UK model on Europe” Green notes. “You have to understand the dynamics and demographics of the market there. There may be the scope to anglicise the leisure experience in Europe, but I don’t think that should be the thrust. We’ll certainly be looking at opportunities there, but with a very open mind. The market over there is certainly more American than Anglo-Saxon.”

Green has an element of sympathy for those senior managers who claim that the proliferation of dot.com companies seeking outside investment is hi-jacking much-needed capital away from more traditional businesses, but he feels that the tide may now be beginning to turn. “Some of the internet companies…well, they make your nose bleed, really!” he quips. “Maybe it’s time now to look back at the value companies, like Bass for instance, which is a great value stock. It’s announced that it will divest itself of its brewing operations, it’s got terrific leisure opportunities, there’s a dot.com element in there too – it’s an undervalued company. Investors will begin to look over their shoulder and realise they need more protection – it’s actually going on already.”

Green cannily admits that the current climate means there may be bargains to be had - “but it’s only a bargain if you can add value in some way.” Suggestions that Candover may be planning a buying spree are not pooh-poohed - “we’re always looking to meet and talk.”

“We don’t buy businesses, we back management” Green says, gently making me aware, by use of an eminently quotable soundbite, that my time is up. “But we don’t manage their businesses for them – we only sit on their board to manage our investment.”

Charlie Green readily admits to having had more than a few drinks and an enjoyable evening at the recent First Leisure annual conference. It is clear that, whilst he would never impose on a trusted management team, he relishes such opportunities to meet line managers face-to-face and to delve into the true guts of a business. One chuckles at the thought of just what the stuffed shirts of investment companies past (and, indeed, present) would make of that.

Ian Freeman is a freelance journalist and communications consultant

Charlie Green sidebar

Favourites:

Food - “Italian and Thai”

Car - “A motorbike actually – the new Triumph 600”

Place to visit overseas - “Micronesia, in the western Pacific”

Hobby - “My children, aged 4½ and 2½”

TV programme - “Trigger Happy TV”

Movie - “Withnail and I”

Theatrical experience - “La Bohême”

Book - “The biography of Captain James Cook by Christopher Hibbert”