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PRIVATE EQUITY
PIONEER
CEO OF 3I MICHAEL QUEEN HAS A PASSION FOR GROWING
COMPANIES, CAPACITY AND COMMUNITIES. GRANT MURGATROYD
A
s chief executive of 3i, a FTSE 100
company and one of the world’s leading
international private equity groups,
Michael Queen is one of the most
influential business people in Britain.
In his 23 years with the firm, Queen has notched up
many successes. Working his way through a variety
of roles including finance director, he led the firm’s
growth capital business and founded its infrastructure
investment arm. In the mid-1990s, he found time to
pioneer the NHS private finance initiative (PFI) which
kick-started hospital building in the UK for the first
time in decades. Recently, as CEO, he’s turned a £2bn
debt in 2009 into £350m currently, built some £2bn
ACCOUNTANCYMAGAZINE.COM | JANUARY 2011
in cash reserves and led a restructure of the group’s
private equity business. And he’s just won the ICAEW’s
Outstanding Achievement in Corporate Finance
Award for his major contribution to UK business,
entrepreneurship and the economy.
But none of these are the moments that have
defined his career. That was getting a position as an
accountancy trainee with Coopers & Lybrand. ‘When
I was younger, I’d had the idea that I wanted to be an
entrepreneur, but I’d never really come into contact
with anyone that was entrepreneurial or business
related,’ says Queen, whose father was an electrician
and mother a bank cashier. With a ‘not particularly
stellar academic track record’ that culminated in a
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degree in industrial economics from the University
of Nottingham, Queen’s appreciation of Coopers for
giving him a chance is evident.
‘Having got that job and starting accountancy,
I realised this was something I could do and was
hugely enthused around business and the way it
worked. Training to be an accountant joined the
dots. I saw how the whole financial system worked
and what the different areas were. I was sent out to
do audits or investigations or fundraising work with
people who were doing all sorts of interesting things
with businesses and it became clear that every single
successful business I looked at had strong finance
teams. The finance people who were really smart and
commercial were genuine business partners of the
entrepreneurs.’
Working with Coopers’ corporate finance team
brought Queen into contact with 3i and he joined
the firm in 1984. At the time, 3i was a British
institution, providing funding on around half of
all private equity deals in the UK. From its base on
Waterloo Road – a landmark used by London cabbies –
3i controlled a network of offices in almost every British
city and was the first port of call for companies seeking
equity and the training ground for almost every UK
private equity executive, known in the industry as the
‘University of 3i’.
Unlike many of his peer group, Queen stayed with
the firm and honed his deal-making skills. A thoughtful
man with an appreciation of the bigger picture, Queen
saw how private equity could develop in the future.
PFI PIONEER
In 1994, he was seconded to the Treasury, where
he set up the PFI unit of the NHS: ‘It was a fantastic
experience. It was a time of great change in that
organisation and seeing the complexities of making
change happen in such a huge organisation was just
fascinating. What was very interesting about the civil
service, particularly the Treasury, was that relatively
young people were given enormous authority at a
young age, which was quite eye-opening. If you take
smart people and back their judgment with the right
controls, there is an awful lot they can do. I sometimes
think that in a corporate environment, where we hire
incredible talent, people are not given responsibility
early enough.’
That experience laid the foundations of Queen’s
proudest achievement. ‘I’d been talking about
setting up the infrastructure business and I had
the opportunity to do it within 3i. It was very
entrepreneurial – we had to create something
completely new from scratch. We ended up listing it as
3i Infrastructure plc, which is now capitalised at about
£1bn and a member of the FTSE 250.’
Queen believes the pioneering deals paved the way
for the development of infrastructure assets in the UK
and across the world.
‘There are pros and cons of the PFI model,’ he
says. ‘Done well, it’s an excellent form of procurement
for public sector assets. Done badly, where it is
just a form of off balance sheet financing, it gives
the whole initiative a bad name. In the early days
of PFI there were some outstanding successes,
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Public sector PFI:
can deliver again
‘with a few tweaks’
but the more it became an off balance sheet
financing mechanism, the more it lost its way. I am
reasonably optimistic that, with a few tweaks, it can
deliver again.’
One of 3i’s earliest PFI deals, Norwich & Norfolk
Hospital, attracted the scrutiny of the National
Audit Office, but Queen argues that it showed these
structures worked for investors, attracting muchneeded capital to the sector. On current projects,
investors are bidding based on equity returns
of 8%-11%, ‘a pretty good cost of capital from a
government perspective’.
The future success of PFI will depend on ‘making
sure there is appropriate risk transfer to the private
sector, that it is not just a financing model, but really is
about transferring the risks of ownership and operation
to the private sector. You can create enough financial
penalties and incentives that, while ultimately the
government might step in, it is so penal for the private
sector that the incentive is to do it properly.’
PASSION FOR COMMUNITIES
Infrastructure is an area with enormous potential. The
deficits faced by developed governments leave little
option but to turn to private capital, while the scale
of asset renewal and development required is simply
staggering. In the US, for example, an estimated $1
trillion (£638bn) is needed to renew the interstate
highway system.
3i has moved heavily into developing world
infrastructure, particularly in India. Queen, who was
caught up in the Mumbai terror attacks in 2008, is
passionate about it: ‘In India, you only need to travel
around to see the infrastructure deficit that exists.
We are very optimistic that that business will grow
significantly and have a profound impact on the lives of
everyday people.
‘One of the big deals we did in India was Adani
Power. It’s an astonishing business, building 10% of
India’s power output,’ he says.
The IPO on the Bombay Stock Exchange, capitalising
JANUARY 2011 | ACCOUNTANCYMAGAZINE.COM
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the business at some $4bn, was one of the largest in
the world in 2009 but that’s not the key point: ‘As they
switch these plants on and connect more and more
villages to the grid, people are getting electricity for
the first time – 43% of households in India are not
connected to any mains. When they connect a village
to the electricity grid, it creates the opportunity for
children to receive education and mundane jobs such
as collecting water can now be done using electric
pumps. Investing in a business with that kind of impact
is really motivating.’
THE ESSENCE OF PRIVATE EQUITY
3i is a truly international firm, with numerous
offices on every continent, almost unrecognisable
from the UK-centric firm Queen joined over two
decades ago. Access to that kind of detailed
management information gives the firm a unique
perspective on the global economy.
‘There is a lot of money flooding into Asia because
of the growth story, and we are certainly building
businesses there as rapidly as we can,’ says Queen. ‘But
I do think people often miss out on what’s right before
their eyes. If you are a European investor, you can
access the Asian or South American growth story very
easily by investing in the right European companies.
By pushing our European industrial and manufacturing
companies to export into India, China or Brazil, we’ve
seen some incredible growth rates in the past 18
months. You can often find the Asian growth story
priced more cheaply in Europe.’
‘When they connect a village to the
electricity grid, it creates the opportunity for
children to receive education... That kind of
impact is really motivating’
Queen cites the 2006
buyout of Norma, a German
manufacturer of automotive
components, as an example.
The company subsequently
expanded within Europe, made
acquisitions in Sweden and the
US, and built manufacturing
capacity in India. Today, it has
12 manufacturing facilities
worldwide, including in Russia,
China and India, more than
3,400 employees and is a global
market leader.
‘The company improved
operations, bought and
built businesses overseas
and is a great example of a
German private deal that has
invested heavily and increased
employment dramatically,’ says Queen. ‘That to me is
the essence of what private equity is doing today.’
A ‘NEW 3i’ TO PLUG THE EQUITY GAP?
Creating a vibrant economy is a policy priority for governments of all political
persuasions. The company 3i was established in 1945 as part of the Atlee
government’s post-World War II rebuilding efforts and to plug an SME
equity gap first publicly identified in 1931. It took the form of two financing
corporations, both supported by the Bank of England and major clearing
banks among others, which aimed to provide long-term capital to SMEs and
support restructure and investment in British industrial sectors. In 1994, 3i
listed on the London Stock Exchange and was on its way to becoming the huge
fund manager – with £13bn of assets under management, mostly in private equity
– it is today.
Queen is the only executive in a financial services company to sit on Prime Minister David
Cameron’s business advisory board. And it’s perhaps surprising that he does not unequivocally endorse
initiatives that seek to create a ‘new 3i’ for today.
‘When governments look to correct market failure, I believe that the more macro you can make the policy
initiatives, the more effect they will have. If you try and solve market failure by creating a new institution, it
will only have a relatively small effect.’
His argument is simple arithmetic. ‘If you look at how many small businesses there are – say 100,000 in
the UK – and set up an institution that invested in 50 companies a year, it would be a hell of a start, but it
would be a drop in the ocean. It clearly doesn’t address anything like the number of companies that need
support.’
The scale and complexity of the issue makes Queen think that tapping into successful entrepreneurs is the
most effective way to plug the equity gap: ‘If you want to stimulate investment into small companies, create
some incentives for business angels or entrepreneurs to invest, rather than create a new entity to do that.
‘Lets say, for the sake of argument, that a business angel invests £1m and as a result a company could
access £2m of government guaranteed loans. You can use the banks – who are already effectively setting
up a £1.5bn fund – as a distribution network. If you have someone prepared to put £1m of their hard earned
money in, you don’t need an agency to police it.
‘In that way you will access far more businesses and money will flow very rapidly to those that have the best
ideas or best position in the market. That would be a great mechanism. With such a complex issue as funding
for small entrepreneurial businesses, a whole variety of different policy initiatives will ultimately be required.‘
ACCOUNTANCYMAGAZINE.COM | JANUARY 2011
CV
■ Who: Michael James Queen
■ Born: 27 Sept 1961
■ Qualifications: FCA
■ Work: Group CEO, 3i Group,
Jan 2009 – present. Joined 3i in
1987. Roles have included group
financial controller, finance
director, global head of growth
capital and managing partner
of infrastructure business.
Seconded to HM Treasury 19941996 to develop NHS private
finance initiative.
■ Life: Married with two
children; golf and other sports
■ iPod: Mozart to punk rock to
contemporary
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