Steve Coppell is an unlikely addition to the ranks of business inspirations, a pantheon that includes the likes of Bill Gates, Warren Buffett and many more, but the economics graduate-turned-England winger-turned-manager of many clubs in many colours deserves his place as far as Russ Cummings is concerned. Coppell was almost Kipling-esque when he was manager of Mr Cummings’ favourite Reading FC in the Noughties, determined to treat the two impostors of victory and defeat just the same.
“The legs are working very hard under the water, but I try to be consistent,” Coppell once said. Compare that with this from Mr Cummings this week: “My style is pretty calm and analytical . . . Business is business.”
Such level-headedness is coming in handy at the moment. Mr Cummings, 52, is faced with a hostile takeover of his company, Touchstone Innovations, and though he appears calmness personified, his legs must have been paddling furiously this week, furious being the operative word. On Thursday David Newlands, Touchstone’s chairman, published a letter to shareholders hitting back at IP Group for “fundamentally” undervaluing his company. He could barely conceal his frustration with Touchstone’s three biggest investors Invesco, Lansdowne Partners and Woodford Investment Management, which together control 75.5 per cent of its shares and have already approved the bid.
The kicker is that the three also own just over half of IP Group. With Neil Woodford, the poster boy of the British technology transfer scene and one of Britain’s most highly regarded fund managers, in the driving seat, the deal looks like a case of Woodford v Woodford, with the inevitable winner being Mr Woodford.
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What seems to have annoyed Touchstone is that ten months ago the same investors had given the impression that they regarded the company and its portfolio of technology and life science start-ups as the jewel in their investment crown. Now they have changed their tune, pitching the takeover at 307p a share, a measly 5 per cent premium to Touchstone’s net asset value and a significant discount to analysts’ target price of between 480p and 500p.
To its minority shareholders and co-investors, this looks extremely opportunistic. Mirabaud Asset Management, which holds 1.3 per cent of Touchstone, has described it as a “material conflict of interest”. Christian Glennie, an analyst at Stifel, says the lack of a significant premium means that Touchstone’s carefully nurtured relationships with scientists in the “golden triangle” — universities in London, Cambridge and Oxford — “are effectively coming for free”.
This strikes at the heart of Mr Cummings’ objections to the deal. The initial approach and discussion was on the basis of a merger, but it soon became clear that IP Group saw it as a takeover. Not only does this relegate Touchstone investors to a third of the merged group, but also leaves a sword hanging over the heads of its investment directors, who are almost as important to the company as its intellectual property.
“It’s a unique team. Many of them are PhD scientists,” Mr Cummings says. “They can understand the deep biology or chemistry or computer science. They can talk with the academics about the science. They can also go out and create companies, recruit in management teams, paint a picture of what the opportunity is for these businesses.”
With no clarity from IP Group on how the merged company will operate, he fears that the team will simply walk.
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As Touchstone’s exclusive pipeline contract with Imperial College expires in 2020, IP Group may not find it as easy to maintain relationships with the scientists there and sniff out the best ideas.
Touchstone, which has a market capitalisation of £484 million, and IP Group £844 million, are among only a handful of companies seeking to commercialise cutting-edge R&D from universities. Such investment requires a “patient capital” approach and lead times as long as ten years.
A low-key and phlegmatic mechanical engineering graduate with a fondness for the hard slog of cycling up mountains, Mr Cummings is perhaps perfectly suited to this sector of slow-burn investments. The son of a work-study engineer and a full-time mother, his biggest extravagance is his collection of 12 bikes and the “craziest” thing he has ever done is design his house.
Touchstone, spun out of Imperial College and formerly known as Imperial Innovations, was the first university tech transfer operation to go public, joining Aim in London in 2006. It has invested £336 million in spin-outs, many of which have raised significant sums from co-investors, including big pharma. Bristol-Myers Squibb is paying Psi Oxus, a Touchstone company, €850 million for the rights to a cancer drug. Ken Rumph, an analyst at Jefferies, has identified six other “soonicorns” in the Touchstone portfolio that potentially could be valued at $1 billion.
Unfortunately for Touchstone, the IP Group bid comes after an almost 30 per cent slide in its share price over the past year. It took a big hit last summer when Circassia, a biotech company, halted trials of its main cat allergy vaccine after it proved a dud, sending its shares crashing by 65 per cent and demonstrating that Touchstone was capable of picking losers as well as winners. It also comes amid general nervousness in the sector after Allied Minds — another technology transfer company with backing from Mr Woodford — closed several subsidiaries and wrote off nearly $150 million on its investments in April. “We are not immune to sentiment around the whole sector,” Mr Cummings says.
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Indeed, as neither IP Group nor Touchstone has been able to generate cash return success, there’s a certain logic in bringing the two portfolios together to spread risk.
It’s not hard to see why IP Group is interested. The takeover solves its biggest problem, its overdependence on Oxford Nanopore Technologies, a DNA analysis company valued in excess of £1 billion, which makes up 52 per cent of its unlisted portfolio.
Under London Stock Exchange rules, IP Group must make a formal offer or withdraw by June 20. Touchstone is holding out, but, with its leading shareholders backing the deal, it seems inevitable. So isn’t Mr Cummings simply swimming against the tide? Probably, but he’s not backing down yet. “We have this machine that is producing high-potential companies year-in and year-out,” he says. “I know we can maintain that as an independent business, but I’m not convinced yet that it could be maintained in a combined business.”
Q&A
Who is your mentor?
Stephen Ross, my former 3i boss, who taught me about empowerment. He didn’t want me to present data, he wanted to hear my judgment and opinions, which made me think.
Does money motivate you?
Yes, up to a point. It gives you choices and allows me to treat myself to new bikes and gadgets.
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What was the most important event in your working life?
The first bad investment that I made, back in the late 1980s, where 3i lost £250,000. You learn far more from the ones that don’t go well; you lose sleep, play over again what you could have done differently.
Which person do you most admire?
Steve Coppell, the former Manchester United and England right-winger and manager of Reading FC. A great leader, motivator and tactician. Remarkably calm and consistent.
What is your favourite television programme?
Not Going Out. Gone off the boil now but great fun in its heyday.
What does leadership mean to you?
Selecting the right people with complementary skills.
How do you relax?
Football and cycling. I cycled 55 miles from my home in Reading to Fulham to watch the
play-off semi-final match.
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Born 1964, North Shields, Northumberland
Education BSc in mechanical engineering, Imperial College, 1986
Career Rolls-Royce Motors, graduate engineer 1982-87;
3i, investment director 1987-2003; Scottish Equity Partners, director 2003-2006; Touchstone Innovations (formerly Imperial Innovations), chief investment officer and now CEO, 2006 to present
Family Married with two sons, aged 20 and 23, both studying/ studied chemistry