Hotelier, property mogul and winemaker… Richard Balfour-Lynn is an energetic entrepreneur who loves doing deals. Here he talks about growing his chain of boutique hotels, the financial crisis and why he’s upbeat about business prospects
It would be an understatement to say Richard Balfour-Lynn has got his hands full. By the time I get to see him in his London office he has whizzed past me twice in the reception area, but he is the antithesis of the harassed businessman when we finally meet. The recession may have shaved a sizeable chunk of the value of his commercial property empire, but he is relaxed and pragmatic.
“You can’t stare at the headlights and freeze,” he says. “You have to accept that the world is different. Throw away the rulebook, ignore what you did yesterday because it is not relevant today and get over the fact that yesterday you were worth a lot more than you are today.”
Balfour-Lynn is the co-founder and chairman of commercial property business Marylebone Warwick Balfour (MWB) and Alternative Hotel Group (AHG) and a major shareholder in both, although he won’t divulge how big a stake he holds. Established in 1994, MWB is made up of the boutique hotel chains, Malmaison and Hotel du Vin, the Liberty department store and MWB Express, which provides serviced offices throughout the UK.
AHG was set up in 2005 and includes the De Vere group of hotels and meeting venues as well as several health and fitness clubs and G&J Greenall, the vodka and gin distiller. The latest addition to AHG is Searcys, the catering and restaurant business, which he bought in 2007. In all, Balfour-Lynn holds almost 200 directorships, enough to leave even the most seasoned businessman breathless and that is without taking into account his daily kickboxing sessions and the award-winning pink sparkling wine he produces on his Kent estate.
Little wonder then that he has no time for nonsense. “I don’t like company politics. I don’t like reading between the lines. I like keeping it really simple so everybody knows exactly where they stand, what they need to do and what they need to do differently,” he spouts in the manner of Sir Alan Sugar.
It is a management approach that suits his employees. “You know where you stand with Richard,” says Duncan Ackery, chief executive of Searcys. “He is direct, fair, very honest and clear about what he wants. There is no hidden agenda with him.”
Balfour-Lynn has made it his business to spot an opportunity and capitalise on it. “My interest is always looking at what is going to be different over the next 10 years,” he says, but denies he has got a special skill. “We can all see where the world is going—the difference is that there are fewer people who want to do anything about it.” He first found business success in the early 1970s when he set up a specialist medical diagnostic centre. Later he came up with ideas in everything from textile to air-conditioning before ending up in property in the early 1980s. “I’d managed to sell some of the businesses I’d set up and everybody was saying commercial property was the professional end of the property market, but I saw enormous growth potential in the refurbishment of residential properties in South Kensington, Hyde Park and central London.”
Alongside business partner William Broadbent, he set up Warwick Balfour, a residential refurbishment company that he says set itself apart by offering exceptional customer service. His instinct turned out to be correct: the business grew rapidly and soon he turned his hand to commercial property, having identified a trend in the hotel business. “If you look at the large corporate hotels, such as Marriott and Hilton, they are good for business travellers but they are not hugely exciting. They are not places I would like to spend my leisure time. Looking for an alternative led us to looking at Malmaison,” he says. MWB acquired Malmaison in 2000 when it still consisted of just five hotels and four years later the Hotel du Vin chain was added to Balfour-Lynn’s portfolio.
The two boutique hotel chains are the jewels in MWB’s crown and the source of much speculation, particularly after Balfour-Lynn twice came close to selling them, at a premium price of around £700m, in 2007 and 2008. But he insists that, contrary to rumours, they are not for sale now. “We got offered the price we wanted and then the banking collapse came and there was no more money available so we withdrew them from the market. We are now planning an international expansion of Malmaison and we are growing Hotel du Vin in the UK. Those are clear objectives,” he says, but then adds that should the right offer emerge he would consider selling. “We have an obligation to shareholders so we would look at it, but at the moment we are very clear—nothing is for sale.”
The first attempt to sell was as part of the failed Vector flotation in 2007. An American-style real estate investment trust (Reit) would have seen MWB offload Malmaison and Hotel du Vin alongside AHG assets to Vector and then lease them back. Vector would also have bought hotel assets from HBOS and RBS. But at the last minute, having already dropped the price, the flotation was pulled. What went wrong? “We were trying to raise £2bn of equity and we raised about £1.7bn, so we were very close but when it came to the last bid the market suddenly slowed very dramatically,” recalls Balfour-Lynn. “The market simply became overheated and we decided we weren’t prepared to drop the price of the assets to a level that could have closed the transaction. It was hugely disappointing, but it was the right decision.”
Balfour-Lynn’s own multiple roles in the complex structure attracted much of the attention. One City expert at the time likened it to “[Sir] Terry Leahy floating a company where Tesco is the landlord, the retailer and supplies the tomatoes”. He explains: “People didn’t like the structure and they didn’t like the perceived conflict of interest, but no one had been able to put together a Vector-type hospitality deal unless one common determinant was putting all the strings together. If it had happened, we would have been applauded for making it happen and when it failed we got criticised.”
Balfour-Lynn is unapologetic about the plan. “It failed. I failed. There is no other way of putting it. I am a big boy. I do live outside my comfort zone, I do take risks and I get it right more than I get it wrong, but it would be arrogant to say that I don’t get it wrong. I do, but I am interested in innovative structures, I am interested in pushing the parcel. I acted as a catalyst to put Vector together and, of course, there was technically a conflict of interest but it comes down to the simple fact of whether there are people in place who have the strength and voice to make sure you act appropriately. In Vector, the non-executives had control of the major decisions and not me, so the appropriate protections were in place,” he says in typically combative fashion. What did he learn from the experience? “I think that one of the things that I have relied on throughout my career is trusting my instincts and because we were involved in such a major fundraising, with so many different advisers, I listened too much to them and not enough to my own instincts.”
His instinct, he points out, would have been to raise a lot more debt and a lot less equity, but Vector was built around a model of high dividend pay, calling for more equity. “What I have done my whole life is borrow a lot of money, reduce the amount of equity and therefore put less pressure on returns on equity with a lower dividend model,” he says. “I have always felt property is a net asset value animal, but the market was saying it wasn’t, and the mistake I made was that I should have raised only £1bn of equity and put in more debt.”
He concedes that looking at the deal today it would probably be “lousy” but adds, “when you look at the world today I don’t think any deal is good frankly.” Balfour-Lynn is unsurprised that after “15 laissez faire years” we find ourselves in recession. “One of the things that corporate governors have tried to foist on companies is non-executive directors, who are strong and who have a clear view. In the banking world what effectively has been allowed to happen is that there has been absolutely no monitoring, which is ridiculous,” he says. “I have been involved in four downturns but this is the first one where the main financial institutions have simply run out of money. If they were in the rag trade they would have all been closed down by now.” But he is appalled at the way the bankers are now vilified. “Peter Cummings of HBOS is being made out to be the devil and the demon when the fact is he was a hero when he made a lot of people a lot of money. It is hugely sad that we play the blame game in Britain. We love to put people on a pedestal and then we try to kick them. It is a very British trait; hugely unproductive and very sad.”
Undeterred by Vector, not least the several million pounds it lost him, it didn’t take Balfour-Lynn long to grab the next opportunity. AHG snapped up Searcys almost two years ago, the result of a chance meeting at the annual Bibendum wine tasting, where Balfour-Lynn was showcasing his Balfour Brut-Rosé. “They handed me their card and I said, ‘if you’d ever like to sell your business I’d be enormously interested’,” he laughs. “They were surprised at finding a wine salesman offering to buy their business, but a couple of weeks later their advisers got in touch and we bought it.”
Searcys had been high on Balfour-Lynn’s radar as a company with the right characteristics: “It’s British, it lacked identity and focus, its brand was apologetic, but it had some very good people working with it and there was a huge latent skill base,” he says.
With restaurants and champagne bars in landmark London buildings including the Barbican, the Gherkin, the Royal Opera House and St Pancras Station, Searcys has an enviable spread and Balfour-Lynn harbours big plans. “Searcys has huge potential; since we bought it we have doubled profits and we want to make it more contemporary; we want the same brand recognition as Terence Conran had with his restaurants,” he says.
Although he doesn’t run any of the businesses at an operational level, he is clearly hands-on and involved in a huge amount of detail—he calls himself a “natural interferer”. According to Robert Cook, chief executive of Malmaison and Hotel du Vin, the key to his extensive involvement is his ability to surround himself with the right staff and Balfour-Lynn agrees. He has spent 25-30 years with the same group of people, each taking responsibility for different areas. “More than anything else I spend time on finding great people to work with and that is how I do what I do,” he says. That and a good dose of straight talking you might add. Balfour-Lynn hates bureaucracy and long meetings “where you go round the houses”, preferring instead to “focus on the key issues and get it done”.
There is ruthlessness about the serial dealmaker; he is engaging and charming even, but he leaves you in no doubt of his high standards. “There is this illusion of people who are incredibly busy, but when you look at what they have done, they have been incredibly busy,” he argues. “What have they actually done? I am not sure. I want people to go home fulfilled—if they do one thing that makes a difference each day that is an achievement.”
Cook refers to Balfour-Lynn as his mentor and says he is hugely inspirational, but extremely challenging to work for. “He will always try to stretch you to the next level,” he points out. “If you give him three, he wants four—but he doesn’t just want any old four, he wants it delivered with style and panache.”
And Ackery adds: “One of the best things about him is that he just doesn’t look back. With all businesses there are issues and problems, but he just looks ahead on what we should be doing and he is consistently half a step ahead of you.”
No longer just the property magnate, are there other diversifications on the cards for Balfour-Lynn? “No. This is a time for consolidation and making sure we all get through the next few years,” he says. He is upbeat about business, saying that UK citizens have become used to shopping and going on holidays, and he believes the weak pound will work in his favour as tourists flock to the UK and Brits stay at home. “Without exception all of our companies will this year outperform what they did in 2008 in terms of profit,” he says.
The recession will only serve to drive him harder. “I am completely motivated by challenge. While these times are difficult they are equally challenging, and succeeding in a very difficult time is what motivates me.” He should relish the next couple of years then.
by Tina Nielsen