James Markham, Partner for Portfolio Management at Graphite Capital talks to Rachel Bridge at Drax about competition, accountability, and how he approaches investments
James Markham has seen many changes in the private equity sector since he joined Graphite Capital, one of the UK’s leading PE firms, 16 years ago.
Perhaps one of the biggest shifts has been in the way that many PE houses are becoming more actively involved in advising and guiding the businesses they invest in.
He says: “The industry is going through a transition to being more rounded and more involved when required.”
Part of this is being driven by increasing competition in the market, which has pushed up acquisition prices and made it harder to achieve the same kind of returns as in the past. But it is also because proactive PE houses can play a very useful role as a sounding board and advisor for a management team’s proposed ideas and strategies.
James says: “Part of the role of a private equity executive is to challenge in a constructive way. As board members, we are well-placed to challenge the management team’s plan for growing the business. We may be able to contribute to the strategic debate, we may see areas of risk that need to be addressed or identify alternative ways of improving or growing the business. Having that check and balance is very healthy.”
He adds: “It is important to face into the reality of where the business is in terms of its operational capability in delivering its plan and executing its growth strategy. Businesses evolve and go through growing pains and sometimes you need to help them. That is very much the role of a private equity firm as a value creation partner.”
What’s more, many professional managers welcome this greater involvement from the PE house, says James. He argues: “I think that, increasingly, management teams, especially professional managers, don’t just want the private equity house to give them capital and turn up for board meetings and occasionally grumble if things aren’t going well; they actually want them to help. They take the view that we are all shareholders together, so let’s a partner and get on with it.”
Graphite has invested in approximately 60 businesses during James’ time at the firm, where he is responsible for implementing best practices across the portfolio. He also currently works with two companies on longer-term transformation projects.
He says that ideally the PE house and the management team should agree on the rules of engagement upfront so that no misunderstandings arise.
He says: “It is really important to sit down together at the start and agree on how you are going to work. We will support teams that do a great job, but if things start going off plan, let’s agree that we will help and get a bit more involved. Openness, honesty, and good communication are absolutely key because we are shareholders together and business partners for the period we are an investor.”
James stresses that there should always be a clear line between the role of the PE house and that of the management team.
He says: “We are not executive managers and we are not trying to be executive managers. There is no substitute for having good people in the business who are running the day-to-day operations. That clearly has to be the objective. But we get involved if they are encountering challenges. For example, many small businesses get to a point where they need better quality management information to run the business. We can help them understand how to do that.”
The people who thrive best in running a private equity-backed firm are those who have a strong sense of ownership and responsibility, says James.
He says: “Not everyone can work in private equity. To be a senior director of a private equity-backed business, you have to have a sense of ownership. You have to think like a shareholder. If something is not right, even if it is in a different part of the business than the one you are directly responsible for, you don’t just let it go. You have to worry about the whole piece. The focus is not just on your functional area, it is on how you as a team are creating a more valuable business as a whole. It takes a particular mindset and a particular character that can be hard to find.”
James says managers also need to be prepared to be accountable. “You have to be confident, have an independent mind, and be prepared to speak out if you feel strongly about something. You have also got to be a good communicator and work well in a team.”
He says that the idea of getting more involved in their investments is something that more PE houses will need to adopt in the future: “It is going to become a lot more difficult to generate returns unless PE houses become more proactive in helping to drive those returns. You have to build good businesses.”
James himself is passionate about helping businesses be the best they can be. He says: “What genuinely excites me and gets me out of bed in the morning is the idea of helping to build better-performing businesses.”
Drax lead: Graham Roadnight
Managing Partner
Email: gr@draxexecutive.com
Tel: 0203 949 9545
