Master of Alchemy

While buyout bosses have squirmed over questions about how much tax they pay, Moulton says: "Every time there is an LBO [leveraged buyout] in this country, the exchequer loses out. The chancellor should be thinking again about the tax revenue he loses on interest [payments]."

Then he adds: "The tax situation is complicated, but the reality is that there's a large chunk of private-equity players who don't pay any tax at all. There are no means of estimating if most private-equity guys are pushing tax allowances to their screaming point but, put it this way, some people in the industry are using tax practices that they wouldn't want their mothers to read about." And he's not finished. "Investors are to blame, too," says Moulton. "The pension funds and institutions are not using their purchasing power to limit the fees and keep costs down. They do this job effectively in the public markets but leave private equity."

Moulton knows the high-reward days of the private-equity boom are coming to an end. "I've always said the boom would end with private-equity companies going public and the largest deals being secondary buyouts. That's happening now."

Right. So that's his clients, industry colleagues and the chancellor heavily criticised, plus a prediction of the end of his own industry. Is Moulton mad?

One senior corporate financier said: "The annoying thing is that Moulton doesn't just rant - he makes people feel uncomfortable because he's right. I remember him speaking at an accountancy dinner where he told them that, in every report he gets, two pages are interesting, the rest is rubbish. He is similarly scathing of bankers and lawyers. And, harsh as he often sounds, he's usually right."

Alchemy, which celebrated its 10th anniversary in January, has advised on more than 100 transactions, including 22 public-to-private deals that have been completed with more than £1.8 billion of equity invested to date. Currently the group owns Floors-2-Go and Parkdean Holidays.

But Moulton insists that he does things differently, particularly with debt. "For a start, we don't have seven-layer loans. We do simple deals with one single level of senior debt. It might have cost us in returns but it's made us more stable and secure. And we publish full accounts and we pay UK taxes."

In this year's Sunday Times Rich List , Moulton had an estimated wealth of £172m but that was before the flotation of Ashmore Group in which he had a 7% stake worth about £116m.

It's an astonishing rise for someone who nearly didn't make it to adulthood. As a child, Moulton, the son of a master engraver from Stoke-on-Trent, had tuberculosis and aplastic anaemia, a form of bone-marrow disease.

"I was a very sickly child," he says. "But nobody knew I had TB until I'd recovered and they found a scar on my lung. I was knocked back for a bit."

As a result of spending weeks at home, Moulton got to know his maternal grandfather, whose drive and success made a big impression. "My grandfather brought his family up when his parents vanished - we think when he was about 16. He had an engineering firm and became very rich. He died when I was 11, but I remember him taking me round his factories and into meetings. I suppose I gained exposure."

Meanwhile, Moulton developed a strong interest in science. He said: "I loved chemistry and did experiments in a shed in the garden that these days would get me locked up under the prevention of terrorism."

Despite his disrupted education, Moulton managed to move on from the local grammar school to become the senior scholar at Aberystwyth University, doing joint honours in chemistry and biochemisty.

He went on to read chemistry at Lancaster University ("both my grammar school and uni have been shut down by Blair") where he made his debut as a troublemaker.

"Panorama came to the campus one day wanting to talk about jobs. A professor collared me and said I was going to do it. So I told them there were no jobs for chemistry students any more because the government had destroyed Britain's chemicals industry."

With this in mind, Moulton trained as a chartered accountant at Coopers & Lybrand (later absorbed into Price Waterhouse Coopers) and worked in the firm's Liverpool office. He was then transferred to the company's office in New York and saw for the first time the activities of the fledgling private-equity industry.

During his three years in New York, Moulton did a stint with KKR. "We took advantage of tax laws whereby you didn't have to pay tax for three years. It was outlawed eventually."

The last of his years there was spent with CVC, another private-equity company. In 1981, at the age of 31, he came back to London to set up a British arm.

"Private equity was almost unheard of and it was hard work. Our first deal was a buyout of Hornby [the model-railway firm]. We had to get 13 investors to raise £3.5m and it was the biggest buyout yet."

But Moulton relished the challenge and in 1985 moved to another start-up, Schroder Ventures (now Permira), where he stayed from its inception for nearly a decade before jumping ship again to Apax.

The deal Moulton is most proud of is the buyout of Parker Pens - a poster of the classic pen hangs above his desk.

"It was a lovely deal," he says. "We bought the company when it was losing £20m a year. By the time we sold it seven years later, it was making £40m a year with gross margins of 3%. It might not sound much, but it was very satisfying." At Alchemy he has acquired a reputation for snapping up and reviving ailing companies. The deal for which he is best known is his failed bid for MG Rover, the defunct British carmaker. Moulton planned to shrink Rover to a small specialist carmaker, but the government backed a rival plan that kept more people in work. Moulton had the last laugh when the rival consortium collapsed after five years.

Moulton is not critical of the entire private-equity industry. "There are strong social and political reasons for tax benefits for venture-capital firms. You can wait over seven years to get your return back and at the end it can be pretty small and it's been hard work and stressful. You need to incentivise people to do it. On the other hand, it's hard to see why you need to incentivise people to do deals like Boots or the AA. Arguably it's less risky and easier to do bigger deals and they take up less of your time - a large company can afford top-class management to turn the business round."

And for the past couple of years Moulton has been warning that the private-equity industry is heading for trouble. He believes the first signs of him being proved right were seen earlier this year.

"It all started at the launch of that charity foundation. Real Deals [the industry magazine] printed a cartoon of a bloke on a pile of £20 notes chucking 5p into a bucket with the headline 'Private equity foundation launched'. It showed how bad things had got."

Moulton says the AA deal was another PR catastrophe for the private-equity industry. "The AA was a not-for-profit organisation. Staff joined it as good citizens, as a kind of civil service. To be chucked out was nasty. Then the carried interest [profit] was probably £500m, of which less than 5% will have gone to the Treasury in tax."

But Moulton's concerns are not just about image but also about financial risks.

"There are a lot of echoes from 1988-9, except that today the volume is vastly greater. In the years 1990 to 1992 the most frequent mode of exit for buyouts was receiverships. There were some extraordinarily overleveraged deals done by respected people - like Gateway or Magnet by Chartered Trust and Wasserstein.

"The levels of debt have soared from four times earnings five years ago to over seven now. Companies are so stacked up with debt that at these levels there's no free cashflow, no dividend. Under old terms, a breach of covenant triggered action - bankers would go in, assets be sold, management fired. But now companies will struggle on until they default in payments. Then you get real problems with payroll, capital expenditure . . . companies will fail in a far worse state and later on."

One adviser said: "It's hardly surprising that Moulton is full of gloom. What he is brilliant at is picking up underfunded, struggling companies but, because every fool is buying weak companies as though they were strong, there aren't any deals left for Moulton. Of course this is frustrating."

Moulton is confident he will be proved right. And, as he leaves me and heads off toa Treasury drinks party, there is no doubt that the government is listening.

Andrew Davidson is away

JON MOULTON'S WORKING DAY

THE Alchemy chief's alarm goes off at 6.45am. "I nudge the wife and if I'm lucky I get a cup of tea," says Jon Moulton.

He spends two days a week working from home in Kent and three days in London. "I have a flat in Knightsbridge which is now worth a fortune even though it's very small," he says. In London, Moulton gets to the office at 8am and deals with messages before spending the day in meetings. He rarely goes out for lunch and finishes work "some time between 6pm and 11pm". He often has business dinners in the evenings, though he tries to keep Thursday nights free for his wife, whom he has known since he was 14.

VITAL STATISTICS

Born:October 15, 1950

Marital status:married, with two children

School:Hanley High, Stoke-on-Trent

University:Lancaster

First job:Coopers & Lybrand

Salary package:£3.5m plus substantial profit share (in 2006)

Car:Audi A2 Homes:London, Kent, France, Guernsey

Favourite book:British National Formulary

Favourite music:Joan Baez

Favourite film:Carry On Camping

Favourite gadget:treadmill

Last holiday:France

Interests:tennis, wife

DOWNTIME

JON MOULTON likes to relax at home in Kent with his wife. There they have a vineyard which he "likes to inspect" and a few alpaca. Otherwise he relaxes in his study.

He tries to keep fit and has his own private gym. He runs half-marathons, plays tennis and is very keen on fishing. Every year he organises an away day for the managers of all the companies in which he invests, which includes a tournament of golf, tennis, driving and shooting.

Moulton is also heavily involved in charity work, especially medical research and care for young dependants.